International Business Machines Corp (NYSE:IBM) has earned a price target bump to $160 from UBS analysts ahead of its fourth quarter earnings report due on January 29 after US markets close.
The analysts raised their price target from $150 but repeated their ‘Sell’ rating on the technology firm.
“Our $160 price target reflects low single-digit organic growth long-term given a mix of legacy software and hardware assets that are not expected to grow, offset by growth in recently acquired software assets,” analysts wrote in a note to clients.
“However, the rise in tech valuations and the S&P is a key factor in our target multiple increasing a turn. At 14.5x, IBM shares would be trading in-line with the average next 12 months price to earnings ratio over the past five years.”
Shares of IBM traded hands at $220 late morning on Wednesday, having gained 31.5% in the last 12 months.
UBS expects IBM’s Q4 earnings report to be “fairly uneventful.”
Revenue is expected to be in line with their $17.62 billion estimate, with software revenue growth in constant currency of 11% compared to guidance of low-double-digit growth.
Consulting revenue is expected to be flat on a constant-currency basis, in line with the third quarter.
UBS expects earnings per share to be down 4% year-over-year at $3.71, below the consensus of $3.77, noting that their tax rate estimate of 16% is a headwind when compared to the 13.9% tax rate reported in Q4 last year.
Looking to first quarter guidance, analysts noted “a series of items from a comparable perspective” make the quarter’s outlook “somewhat tricky.”
“A slower than expected recovery in IT demand and a tough comparable from the recognition of a $241 million pre-tax gain (approximately 20 cents) in Q1 2024 creates risk,” they wrote, also noting that IBM’s tax rate in Q1 2024 was just 5.7%.
They also pointed to weaker-than-expected FX headwinds.
“Since IBM reported in late October, the US dollar has strengthened relative to the Euro, Pound, and Yen. Therefore, the FX headwind has notably increased,” they wrote. “In Q1 25, we now forecast the FX headwind to be approximately 170 basis points, 70 basis points worse than our prior forecast.”
They projected revenue of $14.54 billion and earnings per share of $1.35, below the consensus of $1.59, for Q1.