Evercore ISI lifts IBM stock price target to $275 from $240

On Thursday, Evercore ISI analyst Amit Daryanani raised the price target on IBM stock (NYSE:IBM) to $275 from $240, maintaining an Outperform rating. The adjustment follows IBM’s recent earnings report, which revealed revenues and earnings per share (EPS) that surpassed expectations. IBM’s revenue for the December quarter was reported at $17.6 billion, with EPS at $3.92, compared to the street’s projection of $17.6 billion and $3.78 respectively. With a market capitalization of $211.58 billion and trading near its 52-week high of $239.35, InvestingPro data suggests IBM is currently trading above its Fair Value.

IBM experienced a year-over-year revenue growth of approximately 2% in constant currency terms, aligning with its trailing twelve-month revenue growth of 2.3%. This increase was primarily due to a robust performance in the software segment, which saw an 11.5% growth in constant currency, totaling $7.9 billion. This growth helped to counterbalance the declines in the Consulting and Infrastructure segments, which fell by 1% and 6% respectively. The software segment’s expansion was widespread, driven by a 17% increase in the Red Hat (RHT) portfolio and an 11% rise in the Transaction (JO:TCPJ) Processing Platform (TPP) segment. According to InvestingPro, IBM maintains a GOOD financial health score, with particularly strong marks in profitability and price momentum.

Despite a relatively flat trend in the Consulting division during the fourth quarter, IBM anticipates improvement in the segment throughout the calendar year 2025. This optimism is based on an expected upturn in the broader IT spending environment and the conversion of $5.0 billion in AI signings into revenue. The company reported that overall signings surged by 23% to $8.5 billion, with a trailing twelve-month book-to-bill ratio of 1.21.

Looking ahead to the calendar year 2025, IBM forecasts at least a 5% revenue growth at constant currency and free cash flow (FCF) of $13.5 billion, alongside an anticipated year-over-year profit before tax (PTI) margin expansion of over 50 basis points. Evercore ISI’s updated EPS estimate for IBM in the calendar year 2025 stands at $10.83, which is higher than the pre-report consensus of $10.68.

In summary, Daryanani highlighted IBM’s advantageous position in both the Software (ETR:SOWGn) and Consulting sectors, which are showing signs of upward momentum with AI and potential mergers and acquisitions serving as additional catalysts for growth. IBM is expected to present a more optimistic three-year outlook regarding the sustainability of their growth vectors and free cash flow during their upcoming analyst day next week. The company’s strong market position is further evidenced by its impressive dividend track record, having maintained payments for 54 consecutive years with a current yield of 2.92%. For deeper insights into IBM’s valuation and growth prospects, InvestingPro subscribers can access the comprehensive Pro Research Report, which includes detailed analysis of the company’s financial health, fair value, and growth potential.

In other recent news, IBM has been making significant strides in various sectors. A global study conducted by the IBM Institute for Business Value and Palo Alto Networks (NASDAQ:PANW) revealed organizations’ struggle with security complexity, suggesting a shift to a platformized security approach could improve response times and cost efficiency. In financial perspectives, RBC Capital Markets and Stifel analysts have maintained an Outperform and Buy rating on IBM shares, respectively, highlighting the company’s strong performance and future prospects.

IBM also announced its intention to acquire Applications Software Technology LLC, an Oracle (NYSE:ORCL) consultancy firm, to bolster its Oracle solutions, particularly in the public sector. This acquisition is expected to close in the first quarter of 2025, pending customary closing conditions and regulatory approvals.

Furthermore, IBM has partnered with Walmart (NYSE:WMT) GoLocal to streamline last-mile delivery for retailers, enabling IBM retail clients to incorporate Walmart GoLocal’s suite of delivery solutions into their operations. Bernstein analysts have maintained a Market Perform rating on IBM shares, acknowledging the company’s efforts to improve its growth rate. IBM has also resolved its legal disputes with GlobalFoundries (NASDAQ:GFS), opening up potential for future collaborations. These are the recent developments in IBM’s operations.

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