UBS Adjusts IBM Price Target, Revises Segment Reporting Forecasts
UBS has increased its price target for IBM (NYSE: IBM) to $130.00 from $125.00, while maintaining a Sell rating. The adjustment comes in the wake of IBM’s sale of its Weather business and revisions to its reportable segment data for 2022 and 2023.
The segment reporting revisions have prompted UBS to modify its forecasts for IBM’s revenue growth and profit margins. Notably, the projected Software revenue growth for 2024 has been raised to 5.7% from 5.2%, factoring in an estimated 12.5% decline in Weather revenue and a 5% decrease in Security Services revenue. Conversely, UBS has lowered its Consulting revenue growth forecast for 2024 to 4.6% from 5.1%, reflecting the inclusion of Security Services in the segment.
Furthermore, the removal of stock-compensation and interest expenses from the segments has led to an increase in restated Software pre-tax income (PTI) margins for 2023, rising by 500 basis points to 30% from the previously reported 25%. The restated Software PTI margins for the first quarter of 2023 are reported at 24.7%, 500 basis points higher than the earlier reported 19.7%. Similarly, the Consulting PTI margins have been revised up to 8.2% from the previously reported 7.7% for the same period. These adjustments are mechanical changes in segment reporting and do not impact IBM’s historical consolidated results.
Additional Insights
Despite the price target downgrade, IBM remains an attractive option for income-oriented investors, having raised dividends for 28 consecutive years. Moreover, the stock exhibits low price volatility, appealing to those seeking stable investments. IBM’s market capitalization stands at $166.46 billion, with a P/E ratio of 22.02. The company has witnessed a 2.2% revenue growth in the past year, as of Q1 2023.
IBM has maintained dividend payments for 54 consecutive years and remains profitable. Analysts anticipate the company to sustain profitability in the upcoming year. For further analysis, investors can explore additional InvestingPro Tips for IBM, accessible with a subscription. By utilizing the coupon code PRONEWS24, subscribers can benefit from a 10% discount on yearly or biyearly Pro Plus subscriptions, providing a thorough understanding of IBM’s financial status and market positioning.
