Evercore ISI Resumes IBM (IBM) at In Line
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Evercore ISI analyst Amit Daryanani resumes coverage on IBM (NYSE: IBM) with a In Line rating and a price target of $125.00.
The analyst comments "We are resuming coverage of IBM with an In Line rating and $125 Target Price post the Kyndryl separation that occurred last month. Fundamentally, we view IBM as a more attractive asset as the company is positioned for sustainable growth post-Kyndryl (spin enabled IBM to shed a declining asset that accounted for over 25% of revenue). We see several positives for IBM post the spin: 1) A more agile IBM that is focused on the software & consulting segments of ~$1.0T hybrid cloud opportunity, 2) Increasing software mix tailwinds that will magnify the growth contribution of Red Hat, Automation, Data & AI, Security, 3) Renewed focus on Consulting (formerly GBS) which should accelerate growth toward high single/low-double digit range (vs. more muted performance in recent years), 4) Expanded partnership environment that enables IBM to participate in secular growth opportunities (AWS and Azure were former competitors to IBM’s IaaS offering but post-Kyndryl, these practices became drivers of Consulting growth), and 5) Attractive capital allocation enabled by strong FCF generation: IBM assumed the full dividend burden post-Kyndryl (current yield ~5.6%) and the balance of FCF will be used for M&A that will contribute 1-2pts to overall revenue growth. The offsets we see are – execution needs to improve given the pause into the spin and perhaps better consistency/clarity on how the old middleware centric assets can grow. Net/net: We hold a more favorable view on IBM post spin though we note that management will need to demonstrate a track record of consistent execution against its medium-term target model (revenue performance last quarter was mixed) for us/investors to be more positive on the name."
Shares of IBM closed at $116.92 yesterday.
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