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IBM Downgraded to Sell by UBS, Price Target Cut

IBM is facing near-term risk to fourth-quarter operating estimates and an 'elevated valuation,' UBS says.
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IBM  (IBM) - Get International Business Machines Corporation Report shares will be left "vulnerable" over the next 12 months, according to a UBS analyst, who downgraded Big Blue to sell from neutral and slashes his price target to $124 from $136.

Shares of the Armonk, NY company, which was recently included in Barron's top 10 list of promising stocks for 2022, were down about 5% to $128.39 at last check.

Analyst David Vogt said in a research note that near-term risk to fourth-quarter operating estimates and an "elevated valuation" leaves the shares "vulnerable" over the next 12 months, Vogt told investors in a research note, according to the Fly.

The analyst says IBM is trading at over three turns above its trailing three and five-year averages, indicating the market is underwriting management's mid-single-digit target "despite a history of execution issues." 

In addition, Vogt said he believes the shares are also pricing in 2022 and 2023 earnings estimates that are 10% higher than his estimates.

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In October, IBM's third-quarter revenue results missed analyst estimates.

Revenue rose 0.3% to $17.6 billion, compared with $17.5 billion a year, short of Wall Street's call for $17.8 billion. 

The company reported net income of $1.13 billion compared with $1.7 billion in the. same period a year ago with adjusted earnings of $2.52 a share compared with $2.58 in 2020.

Revenue rose 2.5%, normalized to exclude the company's Kyndryl managed infrastructure services division, which was spun off in November.

“With the separation of Kyndryl early next month, IBM takes the next step in our evolution as a platform-centric hybrid cloud and AI company," Arvind Krishna, IBM chairman and chief executive officer said in a statement. "We continue to make progress in our software and consulting businesses, which represent our higher growth opportunities."

IBM is scheduled to release its fourth-quarter earnings on Jan. 24.