IBM (IBM) Kicks Off Tech Earnings On A Positive Note, Beating by 6% and Gapping up 4%

July 20, 2021 7:46 AM EDT
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Price: $141.34 +0.45%

Rating Summary:
    12 Buy, 23 Hold, 4 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 18 | Down: 12 | New: 23
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IBM (NYSE: IBM) has been notoriously volatile from one quarter to another but offers hope that strong earnings reports can stop the recent tape bleed. EPS of $2.33 beat consensus of $2.20 by 6% and guidance for a 5% q/q revenue decline in 3Q comes in slightly ahead of consensus. Upside came from GBS which rose 7.3% in constant currency, well above last quarter's flat growth. This was enough for investors to bid up shares 4% in the premarket with shares looking to open near $143.

Price targets are coming up as well with BofA's Wamsi Mohan moving to $176 from $175, confident in mid-single digit growth for 5 reasons:

1) IBM has delivered on the goals set so far under CEO Krishna including a return to GBS growth to pre-pandemic levels
2) Improving Software performance at constant currency in 3Q
3) re-acceleration in Red Hat revs
4) Timing of Systems uptick driven by a potential new Mainframe Cycle in C22
5) M&A starting to contribute more materially towards growth

Equal-weight-rated analyst Morgan Stanley's Katy Huberty, on the other hand, raised her PT 8% to $164 from $152 on the belief that investments in Cloud & Cognitive Software are beginning to pay off, and when combined with an improving demand environment, could lead to her $205 bull case price target. She stated "2Q21 results demonstrate improving execution & strengthening demand environment. Investments are driving stronger GBS and Cloud & Cognitive Software growth, which builds confidence in IBM's ability to reach sustainable mid-single digit revenue growth but limits short-term EPS upside."



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