Morgan Stanley has revised its price target for IBM (IBM, Financial), lowering it to $233 from a previous $237 while maintaining an Equal Weight rating. This adjustment comes after IBM's software division failed to meet expectations this quarter, marking a deviation from its recent trend of outperformance.
The analyst emphasized that a single quarterly miss does not establish a pattern. However, for IBM to sustain its current premium valuation, seamless execution is necessary. Despite the current setback, the firm remains optimistic about potential upside in free cash flow, contingent upon the continued weakness of the U.S. dollar.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 18 analysts, the average target price for International Business Machines Corp (IBM, Financial) is $251.52 with a high estimate of $320.00 and a low estimate of $160.00. The average target implies an upside of 2.46% from the current price of $245.48. More detailed estimate data can be found on the International Business Machines Corp (IBM) Forecast page.
Based on the consensus recommendation from 23 brokerage firms, International Business Machines Corp's (IBM, Financial) average brokerage recommendation is currently 2.4, indicating "Outperform" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for International Business Machines Corp (IBM, Financial) in one year is $153.71, suggesting a downside of 37.38% from the current price of $245.48. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the International Business Machines Corp (IBM) Summary page.
IBM Key Business Developments
Release Date: April 23, 2025
- Revenue: $14.5 billion, up 2% at constant currency.
- Adjusted EBITDA: $3.4 billion, with a 240 basis points margin expansion.
- Operating Pre-tax Income: $1.7 billion.
- Operating Earnings Per Share: $1.60.
- Free Cash Flow: $2 billion, the highest first quarter free cash flow in many years.
- Software Revenue Growth: Up 9%, with Red Hat up 13% and Automation up 15%.
- Annual Recurring Revenue (ARR) for Software: $21.7 billion, up 11% year-over-year.
- Consulting Revenue: Flat, with a mid-single digit backlog growth.
- Infrastructure Revenue: Declined 4%, with IBM Z down 14%.
- Debt Balance: Over $63 billion, including $10 billion for the financing business.
- Cash Position: $17.6 billion, up $2.8 billion from the end of 2024.
- Full Year Guidance: Maintaining revenue growth of 5%-plus and about $13.5 billion of free cash flow.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- International Business Machines Corp (IBM, Financial) reported strong revenue growth, profitability, and cash flow generation, exceeding expectations for the first quarter of 2025.
- The company's Software segment grew by 9%, with notable strength in Red Hat, Automation, Data, and Transaction Processing.
- IBM's generative AI business saw significant traction, with a book of business now over $6 billion, up by $1 billion in the quarter.
- The upcoming launch of the z17 mainframe is expected to deliver enhanced AI capabilities and new security features, resonating well with clients.
- IBM's strategic acquisitions, such as HashiCorp, are expected to integrate well with its hybrid cloud strategy, offering synergy opportunities.
Negative Points
- Consulting revenue was flat, with some clients delaying decision-making, particularly in discretionary projects, impacting in-period signings.
- Infrastructure revenue declined by 4%, with IBM Z down 14% as the company wrapped up the z16 program.
- The macroeconomic environment remains uncertain, with potential impacts on client buying behavior and consulting services.
- IBM's federal consulting business, which is less than 10% of total consulting, could be susceptible to discretionary pullbacks.
- The company is cautious about the contribution from Consulting for the year, given the current economic conditions.
