On Thursday, BMO Capital Markets adjusted its outlook on IBM (NYSE:IBM) stock, reducing the price target to $260 from the previous $280 while maintaining a Market Perform rating. The revision follows IBM’s recent performance where software growth fell short of market expectations. According to InvestingPro data, IBM currently trades at $231.80, with analysts’ targets ranging from $170 to $320, reflecting mixed sentiment on the tech giant’s valuation.
Keith Bachman, an analyst at BMO Capital, noted that IBM’s software segment experienced a 9% year-over-year growth in constant currency, which did not meet the anticipated double-digit growth. This outcome was particularly unexpected as it came despite the early closure of a deal with HashiCorp (NASDAQ:HCP). In addition to software, IBM’s Consulting segment also underperformed, with a 9% decline in signings year-over-year when measured in constant currency. The company’s overall revenue growth stands at 1.44% over the last twelve months, with a market capitalization of $214.42 billion.
The analyst’s decision to lower the price target was influenced by the comparative results from other leading service providers, which had already hinted at potential weakness in the consulting sector. Despite the reduced price target, BMO Capital has chosen to stand by its Market Perform rating, indicating a neutral stance on the stock’s prospects. InvestingPro analysis shows IBM maintains a GOOD financial health score, though current trading multiples suggest the stock may be overvalued relative to its Fair Value.
Bachman’s comments suggest a cautious approach to IBM, as he advises investors to seek a more favorable entry point before adopting a more constructive position on the company’s stock. This advice comes in light of the recent quarter’s underwhelming growth figures, especially within the key areas of software and consulting services.
Investors and market watchers will likely monitor IBM’s next moves closely, especially regarding its software and consulting offerings, to assess whether the tech giant can realign with growth expectations in the future.
In other recent news, IBM reported its first-quarter 2025 earnings, surpassing Wall Street expectations with an earnings per share (EPS) of $1.60, above the forecasted $1.42. The company’s revenue reached $14.54 billion, slightly exceeding the anticipated $14.41 billion. Despite these positive results, IBM’s consulting revenue remained flat, and its infrastructure segment experienced a 4% decline, primarily due to the end of the Z16 product cycle. IBM’s management remains optimistic, maintaining its full-year constant currency revenue guidance, expecting a stronger second half with a projected 7% year-over-year growth. Additionally, Oppenheimer adjusted its price target for IBM stock to $290 from $320, while maintaining an Outperform rating, reflecting confidence in IBM’s growth strategies despite market challenges. The firm’s commentary highlights positive trends from Red Hat and potential opportunities with HashiCorp as factors that could bolster IBM’s performance. IBM’s strategic initiatives in AI and hybrid cloud services are seen as critical for sustaining momentum in the coming quarters.
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