IBM Faces Challenging Road to Meet Profitability Targets
IBM's M&A activity will continue to weigh on its margins and free cash flow.

Wedbush Securities on Friday initiated stock coverage on International Business Machines Corp. (IBM) with a "Neutral" rating and a $155 price target.

Wedbush analyst Moshe Katri contends that IBM's M&A activity will continue to weigh on its margins and free cash flow.

"We believe results at IBM's IT Services segments have been impacted by a combination of model delivery shift changes (away from asset/labor intensive to asset/labor light models) as well as pricing/margin compression due to large contract recompete exposure," Katri noted. "Results at the software segment have also been impacted by shifts into SaaS/cloud based alternative models."

Katri added that current long-term growth goals along with profitability targets are likely too aggressive for IBM to achieve.

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