International Business Machines (IBM) stock experienced a notable uptick on Monday following a recommendation from Evercore ISI analyst Amit Daryanani to buy shares ahead of the company’s eagerly awaited first-quarter earnings report scheduled for April 24. Daryanani, who had previously bestowed an Outperform rating and set a target price of $215 on IBM stock, took the bullish sentiment a step further by including shares on his firm’s “tactical outperform list.”
As of Monday, IBM stock was trading 1.6% higher at $185.27. This positive movement adds to the already impressive gains the stock has made, with a 13% increase year-to-date and an impressive 45% surge over the past 12 months.
While concerns loomed regarding potential weakness in IBM’s consulting business, especially given recent challenges faced by rival Accenture, Daryanani remained steadfast in his optimism. He pointed to improving macroeconomic indicators and positive trends in IT spending, suggesting that IBM’s momentum in consulting services is likely to persist. Notably, IBM’s consulting arm exhibited growth of 5.8% in the December quarter.
Looking ahead to the first quarter earnings report, Daryanani anticipates IBM to report revenue of $14.6 billion and earnings per share of $1.60. These projections slightly exceed consensus estimates of $14.5 billion in revenue and $1.59 in earnings per share, according to a FactSet survey. Additionally, he expects IBM to maintain its calendar 2024 forecast for mid-single-digit revenue growth and $12 billion in free cash flow.
During the earnings call, investors will likely focus on several key areas, including artificial intelligence-related bookings growth, the performance of IBM’s Red Hat open-source software unit, the resilience of the consulting business, and progress on free cash flow generation. Notably, IBM reported a doubling of its book of business for WatsonX and other generative AI offerings in the fourth quarter.
In summary, Daryanani’s bullish outlook on IBM underscores the company’s potential for sustained growth and value creation. He believes that IBM is well-positioned to maintain mid-single-digit sales growth, driven by secular trends in consulting, improved execution, and favorable pricing dynamics in the software segment. Moreover, he foresees IBM’s AI business playing an increasingly significant role beyond 2025, further bolstering the company’s long-term prospects. With these factors in mind, Daryanani’s recommendation to buy IBM shares reflects confidence in the company’s ability to deliver strong financial performance and drive shareholder value in the future.