IBM (IBM) Pops After Earnings Beat, Analysts Say Offered Guidance is 'Achievable'

IBM (NYSE: IBM) shares are up 3% in pre-open Thursday after the company reported solid Q3 results.

The company reported an EPS of $1.81 on revenue of $14.11 billion to beat the average analyst estimate of $1.79 on revenue of $13.54 billion. Overall, sales rose 6%, or 15% on a constant currency basis, driven by Infrastructure revenue rising 14.8%.

"IBM delivered strong revenue growth in the quarter, reflecting our continued focus on the execution of our strategy. Globally, clients view technology as an opportunity to enhance their business, which is evident in the results across our portfolio," said Arvind Krishna, IBM chairman and CEO.

On the guidance front, IBM said it sees constant currency revenue growth above the mid-single digit model, up from the high end of the mid-single digit model. The company also reaffirmed the $10 billion full-year forecast for free cash flow.

Stifel analyst David Grossman reiterated a Buy rating and a $140 per share price target on IBM shares. The analyst noted that the Q4 guidance is “very achievable.” the Implied Q4 forecast is 6% revenue growth on a constant currency basis, margin growth +250bp y/y, and ~$6 billion of FCF.

“[We] believe there is visibility into over 10% FCF growth for 2023, which should support the dividend and relative performance in a defensive market. Our $140 PT assumes a flattish multiple applied to 2024E UFCF, which could prove low if execution and growth continue to improve. Notably, management left the door open to doing a larger acquisition if it fit certain strategic and economic parameters, which we would view positively to the extent it changed the current growth profile of the software segment,” Grossman said.

BMO analyst Keith Bachman stated IBM posted “solid” results.

“We thought PTI margins for the Q were a touch below expectations though the Dec Q guide appears achievable. However, IBM will face tough compares in CY23, and we think the macro could impact all areas of growth including Consulting,” Bachman wrote in a note.

By Senad Karaahmetovic

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