IBM Price Target Raised to $140 at Morgan Stanley, $180 in Best Case Scenario

Morgan Stanley analyst Katy L. Huberty raised her price target for IBM from $ 128 to $ 140 by assigning the stock an "equal weight" rating. World's Largest Computer Company Takes Bold Steps by Decreasing Dependency on Legacy Companies and Accelerating Investment There is still much to be done.
The American multinational technology company announced the tax-free spin-off of its Managed Infrastructure Services business, which is expected to be completed by the end of next year. Managed Infrastructure Services represent the majority of GTS, with the exception of the IBM Public Cloud and Technical Support Services business areas. The agreement creates NewCo, a $ 19 billion TTM managed infrastructure services company that will focus on modernizing IT infrastructure.
“Our SOTP reflects an upward trend of 15%, but we are careful to recognize this in the short term. Without complete transparency of the balance sheet and cost breakdowns, we ran an initial SOTP based on EV / Sales to provide a preliminary view indicating a valuation of $ 151 / share. We evaluate each of IBM's sub-segments separately, based on a number of industry peers. Our analysis also credits IBM with unlocking $ 2.5 billion in additional revenue previously booked in internal transactions, adding $ 5 / share to its valuation, ”added Huberty, who is also a price target at best of 180 USD.
“This is in line with a conference call disclosure of $ 19 billion in NewCo revenue and $ 59 billion in RemainCo revenue for the past 12 months, a total of $ 78 billion compared to $ 75.5 billion. We only include operational cash and debts in our analysis, as financial debt is supported by financial assets. Our updated price target of $ 140 (down from previously $ 128) combines our previous EV / FCF sale rating and SOTP (50/50) to partially match the unlock value in SOTP due to the announcement of the spin and increased focus on portfolio optimization appreciate. "
IBM stock rose 0.16% to $ 131.49 on the Friday before trading. However, the stock is down about 2% so far this year.
Several other stock analysts have updated their stock outlook as well. Independent Research raised target price from USD 131.00 to USD 135.00, but rated hold; Credit Suisse raised its share price forecast from USD 155 to USD 161. Citigroup raised its target price for IBM from 120 to 140 US dollars and rated the company as "neutral". JP Morgan Chase & Co. raised its target price from USD 135 to USD 148 and rated the company as “neutral”.
Thirteen analysts are forecasting the 12-month average price at $ 141.55 with a high forecast of $ 155.00 and a low forecast of $ 115.00. The average target price corresponds to an increase of 7.65% over the last price of USD 131.49. According to Tipranks, five of these 13 equity analysts rated "buy", seven "hold" and one "sell".
“The Infrastructure Services spin is a step in the right direction to drive sustainable revenue growth. However, our conviction is diminished by cautious results from our AlphaWise CIO surveys, which indicate that services and AI are most at risk from spending cuts and lower spending intentions at IBM after the Red Hat deal, "said Morgan Stanley's Huberty.
“In the short term, we expect higher recurring income to put pressure on performance compared to other companies as IT spending rebounds from recent lows. Despite our ranking among competitors for services and software, we are kept tied by short-term macro factors and a lack of conviction about IBM's ability to stabilize sales in the medium to long term.
Upside Risks: 1) Short-lived recession followed by a backlog. 2) More substantial divestments or mergers and acquisitions to accelerate growth. 3) IT spending upwards, especially cloud & cognitive, connected with data era projects. 4) Faster execution and benefits of RHT synergies - highlighted by Morgan Stanley.
Downside Risks: 1) Slowed GDP and IT spending result in persistent revenue declines. 2) Non-monetization of investments. 3) AaS growth stops as mgmt focuses on margins. 4) Accelerated cannibalization of clouds in core markets.
This article was originally published on FX Empire
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