Analysts Offer Mixed Ratings On IBM After Weak Q4 Results

IBM (NYSE:IBM) posted its fourth quarter fiscal 2014 earnings report on Tuesday January 20th, revealing another weak quarter in terms of revenue growth. As a result, investors are becoming less and less hopeful of the company’s ability to transition its hardware businesses to the cloud in a successful manor.

Highlights from the report include revenue of $24.1 billion, which was short of the $24.77 billion analyst consensus estimate. Earnings came in at $5.81 per share, down 4% from last year. However, earnings still came in ahead of the analyst consensus by $0.40, while net income from continuing operations fell 11% to $6.2 billion for the quarter.

“We are making significant progress in our transformation, continuing to shift IBM’s business to higher value, and investing and positioning ourselves for the longer term,” CEO Ginni Rometty said in a statement.

IBM has been diligently trying to catch up to competitors with its cloud computing business, posting revenue of $7 billion from the cloud in 2014. However, IBM says that the cloud is not yet scalable enough to offset narrower margins.

“For 2015, specifically, we are dealing with some transitions in our business,” Martin Schroeter, IBM’s chief financial officer, said on a conference call with analysts. “For example, while we are fully participating in the shift to cloud, margins are impacted by the level of investment we’re making and the fact that the business is not yet at scale. We will see some year-to-year benefit to margins in 2015 as the business ramps, but we won’t be at scale.”

Following IBM’s Q4 report, Cantor Fitzgerald analyst Brian White weighed in on the stock on January 21st, reiterating a Buy rating and a $198 price target. White noted, “IBM reported 4Q:14 sales of $24.1 billion that missed our revenue estimate of $24.5 billion, while pro forma EPS of $5.81 was better than our $5.56 projection. This 12 percentage point YoY decline in sales included approximately 10 percentage point’s impact from divestitures and the negative impact of currency given the strong U.S. dollar. This print represents a 8% sequential sales growth.”

Brian White has an overall success rate of 69% recommending stocks and a +17.4% average return per recommendation.

Separately, Morgan Stanley analyst Kathryn Huberty reiterated an Equal-Weight rating on IBM, but raised her price target from $154 to $159 on January 21st. She reasoned, “While 2015 guidance is more conservative than past years, FX volatility and continued cyclical and secular pressures limit visibility into an EPS and FCF recovery. Without signs of improving software and/or services profits, we see shares treading water near-term.”

Overall, Kathryn Huberty has a 73% success rate recommending stocks and a +16.3% average return per recommendation.

On the other hand, Jefferies analyst James Kisner was not so optimistic about IBM following its Q4 report, maintaining an Underperform rating on the stock with a $130 price target on January 21st. He explained, “IBM reported Q4 revenue below expectations; headline Q4 EPS was above expectations but was arguably worse than advertised given non-recurring items. 2015 EPS and cash flow guidance was below Consensus. We believe that the risk/reward of IBM shares continues to tilt negative.”

James Kisner currently has an overall success rate of 56% recommending stocks and a +1.2% average return per recommendation.

On average, the top analyst consensus for IBM on TipRanks is Hold.

Disclosure: All analyst rankings for IBM sourced from TipRanks.