IBM Stock: BMO Raises Target to $265, but Doubts Remain

TLDR

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BMO Capital raised its IBM stock price target to $265 from $230 while maintaining Market Perform.
IBM reported third-quarter revenue of $17.1 billion and adjusted earnings of $2.95 per share, beating estimates.
Software revenue increased 8%, but weaker underlying growth kept BMO cautious about the company’s outlook.
IBM raised its annual free cash flow outlook while maintaining its revenue growth guidance.
Stifel raised its IBM price target to $260 following the company’s third-quarter financial results.

IBM stock drew a higher price target from BMO Capital on Thursday after the company reported better-than-expected quarterly results. The bank raised its target to $265 from $230 but kept its Market Perform rating.

International Business Machines Corporation, IBM

The change followed IBM’s third-quarter earnings release on Wednesday. Shares closed that session at $251.46, before Thursday’s trading brought fresh scrutiny of software sales and the pace of growth. The new target stood roughly 5% above Wednesday’s closing price.

IBM Stock Target Rises Despite Caution

BMO said IBM delivered stronger revenue than analysts expected in the third quarter, helped by transactions that had slipped into the latest quarter. The bank’s assessment followed coverage of IBM’s quarterly earnings. The firm questioned whether that lift would continue without more steady software demand.

IBM reported revenue of $17.1 billion and adjusted earnings of $2.95 per share. Revenue rose 5% from a year earlier, or 6% at constant exchange rates. Both figures exceeded Wall Street estimates of $16.82 billion and $2.86 per share.

Software Growth Remains Under Review

Software revenue rose 8% to $7.8 billion. Transaction Processing increased 9%, while Red Hat gained 11%. Automation revenue fell 3%, giving analysts different signals across the software business.

BMO said organic software growth remained below IBM’s long-term target. It estimated weakness in Data and Automation after excluding acquisitions. Separately, SAP’s latest quarterly results showed 26% cloud revenue growth, reflecting another development in business software this week.

Consulting and Infrastructure Results

IBM’s consulting division generated $5.3 billion, broadly unchanged from last year. Revenue grew 2% after adjusting for currency changes, while strategy and technology consulting posted a modest increase.

Infrastructure revenue reached $3.7 billion, up 4%. Distributed infrastructure sales rose 31%, although IBM Z revenue declined 20%. BMO attributed part of the infrastructure improvement to higher prices and sales volumes. Infrastructure support revenue fell 3% during the period.

Cash Outlook and Analyst Ratings

IBM generated $3 billion in quarterly free cash flow and increased its full-year target. The company expects annual free cash flow to rise by more than $1 billion. In related consulting news, Accenture expanded its services through an acquisition this week.

IBM maintained its forecast for 4% to 5% annual revenue growth in constant currency. Stifel raised its stock target to $260, while BMO said it needs firmer evidence of lasting organic software growth before taking a more positive position.

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