IBM performance enhanced in 1QFY15: UBS Research

IBM performance enhanced

UBS restated a Neutral rating on IBM stock, while holding the $170 stock target price following 1QFY15 earnings release on April 20.

On Monday in a sell side report, UBS restated its rating of Neutral and $170 stock price target on stock of International Business Machines Corp. after the company enhanced performance in first quarter fiscal year 2015, but firm’s questions concerning revenue from core business and free cash flow preserves the Equal Weight rating to the stock.

The sell side research firm informed investors that the company has a robust first quarter results, driven by 30% strategic imperative growth. Though, IBM stock price is most likely about imperative revenue growth of 20% for the complete year, signifying a strike coming.

UBS estimates that revenue from Core Franchise declined by 9% in first quarter against 3% in the prior year quarter.  The requirement to include for High Value Transactional revenue made the situation more puzzling, but the firm remains anxious regarding “legacy business” could surprise near the downside.

International Business Machines believes the free cash flow to be flat in 2015 at around $12.4 billion, the research firm was astonished that cash taxes will enhance by almost $2 billion as the company had proposed less of a benefit. Most importantly, the company specified that cash taxes next year can be a cash flow headwind.

UBS expects around $13.5 in free cash flow is because of higher net profit but inclusive of certain benefit from lesser cash taxes. Shareholders are more intensive FCF than earnings report; hence any sort of deficit will be significant.

Steven Milunovich, analyst at UBS research firm noted that the main strain on big blue company’s earnings for the last two years was due to losses in hardware business, which is now being solved by divestures, mainframe cycle and stabilization of power.

UBS firm expects that IBM management must address a falling software division and pressured services. IBM may require becoming more materialistic in software segment while simultaneously trying to decrease service acquaintance, possibly by divestures.

Moreover, Mr. Milunovich said, “IBM is near our price target of $170 or 13.5x 2015 FCF and 10.6x EPS. Although it is good news that financial performance is bottoming, we think the company is in a multi-year turnaround and that it is premature to get too excited. The stock is becoming overbought and is near important resistance at its 200-day moving average.”

Almost 30 analysts covers IBM stock, 5 of them assigned Buy rating, while 20 rate it a Hold. The twelve month consensus stock price target is $161.2.

IBM stock is up by 0.28% to $174.40 at market close on Wednesday.



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