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On Thursday, Stifel analysts increased their price target on IBM (NYSE:IBM) shares to $271 from the previous $246, while maintaining a "Buy" rating. The revision follows IBM’s recent financial performance report, which showed a 2% year-over-year increase in revenue to $62.75 billion, aligning with projections. The company’s profit margins expanded by 30 basis points, surpassing expectations by 40 basis points, and earnings per share (EPS) grew by 1%, slightly above forecasts. With a market capitalization of $240.73 billion and a "GOOD" Financial Health Score according to InvestingPro, IBM continues to demonstrate its strength as a prominent player in the IT Services industry. InvestingPro subscribers have access to 10 key investment tips and comprehensive analysis for IBM.
IBM’s free cash flow (FCF) saw a significant outperformance, approximately $500 million higher than anticipated, marking an 11% increase. This FCF surge was largely attributed to the divestiture of Qradar and associated net cost reductions, among other factors. IBM’s infrastructure revenue exceeded expectations, while consulting revenue fell slightly short, and software revenue met predictions. The company’s robust EBITDA of $14.05 billion underscores its strong operational efficiency.
For 2025, IBM has set a guidance for mid-single-digit revenue growth, which includes a contribution of around 90 basis points from the HashiCorp (NASDAQ:HCP) acquisition. This indicates that the guidance is consistent with, or slightly below, the consensus expectations of 4.5-5.0% growth excluding HashiCorp’s impact. The pre-tax income (PTI) margin is forecasted to improve by 50 basis points year-over-year, driven by a strategic rebalancing, a favorable mix towards software, and the mainframe cycle.
IBM’s anticipated free cash flow for 2025 is around $13.5 billion, which is roughly 4% higher than market expectations, despite a 2.0-2.5% dilution resulting from the HashiCorp acquisition. The company also noted an increased foreign exchange headwind of 200 basis points, up from an earlier estimate of 50 basis points.
Shares of IBM climbed by 8-9% in the morning trading session, reflecting investor enthusiasm over the company’s robust free cash flow performance and the guidance for 2025. The strong financial foundation heading into 2025 was already recognized, but IBM’s ability to generate higher free cash flow suggests an improvement in execution, which could justify a higher valuation multiple. Currently trading at a P/E ratio of 32.6x, InvestingPro’s analysis indicates that IBM is trading above its Fair Value. Stifel’s revised price target of $271 is based on 17.5 times IBM’s estimated 2026 unlevered free cash flow. For a deeper understanding of IBM’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, IBM has seen several significant developments. Analysts from BMO Capital, JPMorgan, and Evercore ISI have all raised their stock price targets for IBM, reflecting confidence in the company’s ongoing improvements and future growth potential. IBM’s recent earnings and revenue results have also drawn attention, with the company’s software segment contributing to 45% of the total quarterly revenue of $62.58 billion and free cash flow for the fourth quarter exceeding expectations.
In terms of mergers and acquisitions, IBM has announced its intention to acquire Applications Software (ETR:SOWGn) Technology LLC, an Oracle (NYSE:ORCL) consultancy firm. This acquisition is set to enhance IBM’s Oracle solutions in the public sector, with closure expected in the first quarter of 2025, subject to customary closing conditions and regulatory approvals.
IBM has partnered with Telefónica Tech to enhance its cybersecurity services using quantum-safe technology. This partnership aims to counter emerging threats from quantum computing, which could potentially disrupt traditional encryption methods. Telefónica Tech will deploy IBM’s quantum-safe technology at its Madrid headquarters to create secure solutions for businesses and public administrations.
In other company news, IBM has partnered with Walmart (NYSE:WMT) GoLocal to streamline last-mile delivery for retailers. The company has also participated in a global study conducted by the IBM Institute for Business Value and Palo Alto Networks (NASDAQ:PANW), revealing organizations’ struggle with security complexity. These developments indicate IBM’s ongoing efforts to improve its operations and market position.
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