IBM's Double-Digit Growth In TP And Data & AI Not Sustainable, Predicts Analyst

BMO Capital Markets analyst Keith Bachman reiterated the Market Perform rating on International Business Machines Corporation IBM, raising the price target to $152 from $150.

IBM reported second-quarter results recently, where earnings of $2.18 per share were ahead of the $2.01 Street estimate on revenues of $15.47 billion, which missed the $15.57 billion consensus estimate.

In the software segment, the analyst thinks the upside was driven by two areas – transaction processing (TP) and Data & AI. 

Bachman had expected mid-single-digit growth in TP and low single-digit growth in Data & AI, and both generated double-digit growth of 10% to 11% y/y CC.

However, the analyst does not think the double-digit growth reported in the June quarter is sustainable. The analyst believes that IBM can sustain the low single-digit increase in TP given a captive audience.

Bachman modestly raised FY24 Software growth expectations from 4.1% y/y to 4.7% y/y. 

The analyst adds that IBM generated 5% y/y consulting growth despite a weak economy. 

The analyst also highlights IBM's plan of building a $1 billion book of AI consulting business, though it will take time. 

Based on the above, the analyst expects IBM's FY23 revenues to be $62.33 billion, with EPS of $9.60.

Price Action: IBM shares are trading higher by 2.25% to $138.53 on the last check Thursday.