International Business Machines Inc. (IBM) - Get Report shares jumped higher Wednesday after the Swiss investment bank UBS lifted its rating on the stock to "buy" and boosted its price target, citing solid prospects for its services and artificial intelligence businesses.
UBS IT hardware analyst Steven Milunovich lifted his rating on the stock from "neutral" to "buy" and boosted his price target on the stock to $180 from $160, firmly ahead of the analyst consensus of $167. UBS noted that while there was "little chance" of revenue growth for IBM Analytics, Cloud and Services in 2019, the following year looks better, and will be driven by "Cloud and Analytics."
IBM shares were marked 2.5% higher at the opening bell and were changing hands at $152.60 each, a move that trims the stock's year-to-date decline to around 0.56% and value the Armonk, New York-based group at around $136 billion.
Milunovich, who said last year that IBM would come "roaring back" in the second half of 2018, posted better-than-expected second quarter earnings in July thanks to solid growth in its cloud services business.
IBM said net income rose for the three months ending in June rose 5.2% to $2.4 billion, or $2.61 per share, as sales rose 4% to around $20 billion. Earnings were able to surpass sales growth thanks to a shift towards higher-margin products and business segments it has dubbed "strategic imperatives" under the leadership of CEO Ginni Rometty and which now comprise around half of Big Blue's quarterly sales. Cloud computing sales, the company said, rose 20% from the same quarter last year.
Rometty said Cloud revenue has risen to $18.5 billion over the past four quarters, a figure that represents just under half of its "strategic imperatives" and a quarter of the group's overall top line, a drive that Rometty said reflects "our success in helping enterprise clients with their journey to the cloud and we're becoming the destination for mission-critical workloads in hybrid environments."
TheStreet's tech expect, Eric Jhonsa, however, wrote that while the group's modestly-stronger Q2 earnings and guidance confirmation should support the stock in the near-term, "IBM's revenue growth is still well below that of many peers. And though total sales were a little better than expected last quarter, the company's most profitable segment stumbled a bit."
"IBM's numbers are good enough to boost a stock that has been under pressure for several years, and has been stung this year by Warren Buffett's decision to throw in the towel," Jhonsa argued. "But more signs of progress will probably be needed in order for Big Blue to dramatically change Wall Street's perception of it."