Story updated at 10 a.m. to reflect market activity.
IBM gained 1% to $198.58 in morning trading.
The bank set a $200 price target for the computer company. Analysts Sherri Scribner and Joakim Mahlberg said virtualization continues to change the spending landscape.
"We view cost take outs and improving mix as a positive for margin expansion for IBM over the next few years," the analysts wrote. "In addition, the company continues to reduce its share count through buybacks, benefitting EPS. Despite these positives, we view growth as challenged for IBM, given its size and limited exposure to growth segments. Given the lack of growth, we expect shares to be range bound and expect the stock to trade modestly below historical multiples. With shares trading near these levels, we rate IBM a Hold."
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Separately, TheStreet Ratings team rates INTL BUSINESS MACHINES CORP as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate INTL BUSINESS MACHINES CORP (IBM) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, expanding profit margins, good cash flow from operations, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- INTL BUSINESS MACHINES CORP has improved earnings per share by 11.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, INTL BUSINESS MACHINES CORP increased its bottom line by earning $15.02 versus $14.41 in the prior year. This year, the market expects an improvement in earnings ($18.00 versus $15.02).
- The gross profit margin for INTL BUSINESS MACHINES CORP is rather high; currently it is at 56.58%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 22.32% trails the industry average.
- Net operating cash flow has slightly increased to $6,528.00 million or 2.86% when compared to the same quarter last year. Despite an increase in cash flow, INTL BUSINESS MACHINES CORP's cash flow growth rate is still lower than the industry average growth rate of 17.47%.
- The net income growth from the same quarter one year ago has exceeded that of the IT Services industry average, but is less than that of the S&P 500. The net income increased by 6.0% when compared to the same quarter one year prior, going from $5,833.00 million to $6,184.00 million.
- Despite the weak revenue results, IBM has outperformed against the industry average of 20.4%. Since the same quarter one year prior, revenues slightly dropped by 5.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full analysis from the report here: IBM Ratings Report