UBS maintains IBM stock Sell rating with $160 target

On Thursday, UBS analyst David Vogt maintained a Sell rating on IBM (NYSE:IBM) stock, with a price target of $160.00, significantly below the current trading price of $259.98. According to InvestingPro analysis, IBM appears overvalued at its current market capitalization of $240 billion and P/E ratio of 37.25. Vogt’s assessment followed IBM’s recent financial disclosures, which included fourth-quarter revenue and operating income figures that aligned with UBS’s projections. Software (ETR:SOWGn) revenue met expectations, while consulting revenue was slightly below. The reported operating income for the fourth quarter was $4.40 billion, marginally surpassing UBS’s estimate of $4.38 billion.

Looking ahead, Vogt expressed concerns about the first-quarter revenue and EPS estimates, considering potential challenges such as a muted demand environment, foreign exchange headwinds, the lapping of a one-time gain from the previous year, and the comparison to a previously low tax rate. InvestingPro data shows IBM maintains a "GOOD" overall financial health score, with annual revenue of $62.75 billion and EBITDA of $14.05 billion in the last twelve months. During the earnings call, IBM provided guidance that indicated an expected constant currency revenue growth of approximately 2% for the first quarter of 2025.

Furthermore, IBM’s pre-tax income (PTI) margins for the upcoming quarter were guided to be around 10%, which is below UBS’s estimate of 10.3% and the consensus estimate of approximately 12%. As a result, UBS has adjusted its first-quarter EPS estimate for IBM to $1.34, a slight decrease from the previous $1.35 estimate, and well below the Visible Alpha Consensus (VACons) estimate of $1.58.

The guidance provided by IBM, particularly regarding the first-quarter revenue growth and PTI margins, has been a focal point for analysts and investors, especially in light of the anticipated HashiCorp (NASDAQ:HCP) deal. With these considerations in mind, UBS’s outlook on IBM stock remains cautious as the company navigates the current financial landscape. For deeper insights into IBM’s valuation and financial health metrics, including exclusive ProTips and comprehensive analysis, explore the full research report available on InvestingPro.

In other recent news, IBM has seen several significant developments. The company reported a 2% year-over-year increase in revenue to $62.75 billion, surpassing expectations. Earnings per share (EPS) also grew by 1%, slightly above forecasts. Analysts from Stifel, BMO Capital, and JPMorgan have raised their stock price targets for IBM, reflecting confidence in the company’s ongoing improvements and future growth potential. Additionally, IBM’s free cash flow (FCF) saw a significant outperformance, approximately $500 million higher than anticipated, marking an 11% increase.

In terms of mergers and acquisitions, IBM has announced its intention to acquire Applications Software 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. IBM has also 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.

IBM has also partnered with Walmart (NYSE:WMT) GoLocal to streamline last-mile delivery for retailers and participated in a global study revealing organizations’ struggle with security complexity. These developments indicate IBM’s ongoing efforts to improve its operations and market position. These are the recent developments in IBM’s operations.

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