IBM Price Target Cut at BMO on Economic-Growth Concern

Economic uncertainty will weigh on IBM, says BMO analyst Keith Bachman. He lowered his price target to $135 from $155 and affirmed a market-perform rating.
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The International Business Machines  (IBM) - Get Report share-price target at BMO Capital Markets was cut 13% by analyst Keith Bachman, who cited doubts about the economy’s strength.

He reduced the target to $135 from $155 and affirmed his market-perform rating, The Fly reports.

The target drop apparently didn’t affect the Armonk, N.Y., tech giant's stock on a day when the broad market is indicated sharply higher. IBM shares at last check rose 2.8% to just under $119. 

The shares have dropped 16% over the past three months, about the same as the S&P 500 index.

Bachman lowered his estimates for IBM’s earnings per share to $11.69 from $13.33 for 2020 and to $13.02 from $14.02 for 2021.

Bachman noted in a report that it’s quite unclear when the economy will rebound, according to The Fly.

Red Hat, the open-source software unit that IBM bought last year, will struggle with upsells and new logo growth, though it should hold up better than other areas of the company, as 90% of its revenue comes from subscriptions, he said.

IBM on Monday reports first-quarter earnings. Analysts estimate earnings per share will total $1.70 for the quarter and $12.20 for the year, according to Zacks Investment Research.

IBM last week installed a new chief executive, Arvind Krishna. It has struggled in recent years, lagging Amazon.com  (AMZN) - Get Report and Microsoft  (MSFT) - Get Report in the fast-growing field of cloud computing.

IBM’s performance is a question mark, says Morningstar analyst Julie Bhusal Sharma.

It needs to refinance its debt over the next five years to allow substantial dividend growth, she wrote in an April 1 report. 

The coronavirus pandemic will make that difficult in the short term. But longer term, “it’s still quite likely that IBM can refinance as macroeconomic conditions recover,” Bhusal Sharma said.