IBM (IBM): More Mixed Results, Cutting PT - Wells Fargo
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Wells Fargo analyst, Maynard Um, reiterated his Market Perform rating on shares of IBM (NYSE: IBM) but cut his valuation range to $150 - $160 from $155 to $165 after Q3 results showed another quarter of puts and takes.
The analyst liked:
1) strategic imperatives y/y growth accelerated from prior quarter to 15% at cc driven by cloud (up 42%), mobile (up 19%), analytics (up 14%) and security (up 11%), while social was down 21%
2) Q3 EPS was slightly ahead of our and consensus est. due to lower taxes
3) solutions software revs increased 8% in cc led by analytics (similar benefit from acquisitions as in prior qtr)
4) reiterated FY16 EPS (at least $13.50) and FCF guide (high-end of $11-12B)
5) technology services and cloud platforms (TS&CP) continued to see rev growth driven by integration software (up 4%) and infrastructure services (up 2%) partially offset by support services (down 1%)
1) gross margins were impacted across segments due to continued investments to accelerate transformation
2) excl. the tax benefit, EPS would have been below our/Street estimate
3) intellectual property licensing agreements benefitted the quarter
4) systems hardware sales were below expectations (system z product cycle is in its 7th quarter, storage hardware impacted by shift to software-defined and weak Power systems sales and pricing pressure impacted margins)
5) cognitive solutions gross margins were down and below expectations due to mix shift to software-as-a-services and investments, and 6) GBS consulting remains under pressure (down 5% at cc) due to wind-down of large projects
Shares of IBM closed at $154.77 yesterday.
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