BMO Capital Markets analyst Keith Bachman reiterated the Market Perform rating on International Business Machines Corporation IBM with a price target of $152.
IBM will discuss its third-quarter 2023 financial results on Wednesday, October 25, 2023.
On the positive, Bachman notes that Software demand has been steady and that IBM can meet the estimate/consensus forecasts in 2HFY23 and even deliver some upside helped by M&A.
According to the analyst, software trends have remained relatively stable, and thus, Hybrid Platform can continue to grow mid-to-high single digits over the next two quarters.
Moreover, IBM closed the Apptio deal in mid-August versus expectations of a 4QFY23 close and embedded guidance of a 0.5pt help to FY2023 Software growth, adds the analyst.
The analyst notes that Apptio was guided to add about $125 million of revs in 4QFY2023, which Bachman estimates to be about a $400 million annual run rate if typical software seasonality persists.
Bachman writes the early close could provide a slight upside to the September quarter and FY2023 in Hybrid Platform to go along with steady demand.
In TPP, the analyst forecasts 5.5% y/y CC growth versus 10% y/y CC growth in the June quarter, though on a ~10pt harder organic compare.
The analyst is "more confident" in the growth trajectory of TPP in the medium-term of low-to-mid single digits, though note there is variance in growth in any given quarter.
Bachman estimates that growth will moderate to mid-to-low single-digits in TPP in the long term.
On the other side, some risks to IBM Consulting estimates in 2HFY23 imply consistent growth even against easier comps versus the broader industry exhibiting meaningful deceleration.
Bachman remains skeptical, adding that margin challenges will persist.
Price Action: IBM shares are trading higher by 0.30% to $136.76 on the last check Tuesday.
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