RBC Capital Upgrades IBM (IBM) to Outperform, 'Return of the Machine'

RBC Capital upgraded IBM (NYSE: IBM) from Sector Perform to Outperform with a price target of $180.00 (from $160.00).

ANalyst Amit Daryanani expects the company to experience mainframe cycle benefits, FX tailwinds, hybrid IT recovery and suspects investors will begin to appreciate the attractive valuation. The analyst comments "We see a host of cyclical and secular levers that should enable share performance through 2018 - a return to gross margin stability coupled with revenue growth in 2018 should set-up the stock for a year of outperformance especially considering the depressed valuation. Key levers behind our upgrade: 1) Mainframe cycle – We expect the mainframe cycle to drive not just hardware but could contribute to software/services revenues given OS/Services attach, 2) We see F/X becoming a tailwind for IBM in CY18, a dynamic we haven’t witnessed for 3+ years, 3) Hybrid IT recovery – We expect the trend towards hybrid IT spend improving through 2018 which should enable IBM revenues to revert to modest (1-3%) growth, and 4) valuation – we think should revenues and gross margins stabilize to improve in 2018, current valuation at ~11x P/E will prove to be very attractive especially given the 3%+ dividend yield. Net/Net: We think IBM is an attractive large-cap value stock for investors in 2018 as the potential for revenue and margin stability should enable a re-rating."

For an analyst ratings summary and ratings history on IBM click here. For more ratings news on IBM click here.

Shares of IBM closed at $154.25 yesterday.

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