On Thursday, Stifel analysts maintained their Buy rating on IBM stock (NYSE:IBM), with a steady price target of $290.00. According to InvestingPro data, IBM currently trades at $230.54, with a market capitalization of $215.45 billion, positioning it as a prominent player in the IT Services industry. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading above its Fair Value. The firm’s analysis highlighted IBM’s first-quarter performance, which showed a 2% revenue growth and a 5% growth on a constant currency basis, slightly surpassing expectations. With trailing twelve-month revenue of $62.75 billion and a solid gross profit margin of 56.65%, IBM continues to demonstrate financial stability. Stifel also noted that IBM has reiterated its guidance for 2025, projecting over 5% revenue growth, with 3% being organic, and an improvement in pre-tax income (PTI) margins by 50 basis points. The forecast includes a free cash flow (FCF) increase of 6%, aligning with consensus estimates. For deeper insights into IBM’s financial metrics and growth potential, InvestingPro subscribers have access to over 30 additional key indicators and exclusive analysis.
IBM expects currency fluctuations to shift from a 200 basis point headwind to a 100-150 basis point tailwind. The second-quarter 2025 constant currency revenue growth guidance is set at 4%, which suggests around 3% growth for the first half of the year, with approximately 1% organic growth. This contrasts with an anticipated 6% growth, of which 4% is organic, in the second half of 2025. The reported growth will likely benefit from the mainframe cycle beginning in mid-June and recent mergers and acquisitions, including HCP and DataStax.
The anticipated organic acceleration is mainly due to the new mainframe cycle, which is expected to contribute an additional 200-300 basis points to organic growth in the latter half of the year. IBM shares experienced a 6-7% decline in morning trading, which Stifel attributed to the stock’s elevated valuation and the in-line FCF guidance, despite the reversal in foreign exchange (F/X) impacts. The firm pointed out that despite the depreciation of the US dollar, F/X, inclusive of hedging gains, continues to pose a $100 million year-over-year headwind to FCF.
Stifel’s commentary suggested there is minimal incentive for IBM to revise its FCF guidance at this stage, given the historical seasonality of FCF, with the fourth quarter typically accounting for more than 50% of the total, and the current economic uncertainty. The company maintains a strong dividend track record, having raised dividends for 29 consecutive years, with a current yield of 2.72%. With the stock trading at approximately 15 times the projected 2026 FCF and showing an overall "GOOD" Financial Health Score according to InvestingPro, Stifel considers it an attractive entry point for investors with a defensive strategy.
In other recent news, IBM has reported its first-quarter 2025 financial results, surpassing Wall Street expectations with an earnings per share (EPS) of $1.60, compared to the forecasted $1.42. The company’s revenue reached $14.54 billion, slightly above the anticipated $14.41 billion. Despite these positive results, IBM’s stock saw a decline in pre-market trading, reflecting investor concerns about future growth prospects. Analysts from BMO Capital and Oppenheimer have adjusted their price targets for IBM, with BMO reducing its target to $260 and Oppenheimer to $290, citing underperformance in the consulting sector and market multiples contraction. IBM’s software revenue increased by 9%, while its infrastructure segment saw a 4% drop due to the end of the Z16 product cycle. The company maintains its full-year constant currency revenue guidance, expecting stronger growth in the second half of the year. IBM’s strategic focus includes positive trends from Red Hat and potential cross-selling opportunities with HashiCorp (NASDAQ:HCP), along with the anticipated launch of the Z17 product. These developments are crucial for IBM’s ability to navigate current economic challenges and capitalize on its growth strategies.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.