IBM Puts Tech-Spending Concerns to Rest, Lifts Software Stocks

NEW YORK ( TheStreet) -- IBM's ( IBM) fourth-quarter results delighted tech investors, as it spelled good news for software stocks such as Red Hat ( RHT) and Informatica ( INFA).

Big Blue's shares rose 5.1% to $205.98 on Wednesday after the tech bellwether beat Wall Street's revenue and earnings estimates, boosted by strength in IBM's software business. Software revenue increased 3% (or 4% adjusted for currencies) to $7.9 billion, while services-unit revenue declined.

BMO Capital Markets analyst Karl Keirstead noted that, on the earnings conference call, the tone of IBM's software comments brightened from the previous quarter. Specifically, he said, IBM cited strength in data integration and mainframes.

Strong growth in data integration bodes well for Informatica, according to the analyst, while open-source specialist Red Hat stands to gain from uptake of Linux-based mainframes.

Informatica shares rose 4.2% to $33.13 on Wednesday, while Red Hat gained 2.6% to $54.15. By contrast, the tech-heavy Nasdaq rose only 0.4%. Oracle ( ORCL) shares crept up 0.1% to $34.97, while Microsoft ( MSFT) climbed 1.3% to $27.51.

Overall, though, IBM has won plaudits for its fourth-quarter performance, offering some good news to investors concerned about the tech spending climate.

In addition to its strong quarterly numbers, IBM also delivered healthy guidance, projecting fiscal 2013 earnings of $16.70 a share. Analysts surveyed by Thomson Reuters expected earnings of $16.63 a share.

IBM CEO Ginni Rometty also reiterated the company's long-term goal of operating EPS of at least $20 in 2015.

"Given the uncertain demand environment, IBM's performance shined," Topeka Capital Markets analyst Brian White said in a note Wednesday. "We continue to believe that IBM represents an attractive tech play in a muted IT spending environment with high exposure to recurring revenue from businesses such as software and services."

White, who has a "buy" rating on IBM, raised his price target to $251 from $245. The analyst also hiked his first-quarter revenue estimate to $24.42 billion from $24.27 billion and his earnings estimate to $3.05 a share from $3. Analysts surveyed by Thomson Reuters are looking for first-quarter revenue of $24.67 billion and earnings of $3.06 a share.

Societe Generale upgraded IBM from "sell" to "hold" and raised its target price to $201 from $188.

In a note released Wednesday, Societe Generale analyst Richard Nguyen pointed to IBM's better-than-expected guidance, the success of its new mainframe offerings and the company's potential for software and services growth.

"With an improving demand environment expected for the second half of 2013 , notably in Europe, IBM should be able to reverse its revenue growth trajectory which has declined over the last three quarters," he wrote.

--Written by James Rogers in New York.

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