Zinger Key Points
- Goldman Sachs sees IBM as underappreciated with strong long-term growth potential.
- IBM forecasts 5%+ revenue growth, driven by software and consulting.
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Goldman Sachs analyst James Schneider expressed views on International Business Machines Corporation‘s IBM Investor Day, which took place on February 4.
The analyst maintained a Buy rating and a $275 price forecast, considering the company remains underappreciated in the TMT sector and offers discovery value, especially for long-only investors.
The analyst notes that IBM projects over 5% total revenue growth from 2025 to 2027, including M&A, with pre-tax margin and FCF growth outpacing revenue growth.
The analyst notes the stock should continue to rise, as IBM has outlined a credible strategy to sustain accelerated long-term Software revenue growth of around 10%, surpassing their previous expectation of high-single digits for 2025-2027.
Moreover, Schneider notes that IBM raised its medium-term Software revenue growth target to 10%, up from mid-single digits, with Red Hat seeing mid-teens growth.
The analyst sees a potential upside in IBM’s Software growth and margins, fueled by increasing demand for containerization, OpenShift, Ansible, and RHEL.
Additionally, IBM’s early leadership in GenAI, with ~$1 billion in Software GenAI bookings to date, presents further growth opportunities, adds the analyst.
Also, the analyst notes that IBM expects Consulting business to outperform the market through share gains, and Infrastructure business is forecasted to grow 1%-3%, on mainframe and storage growth.
Overall, the analyst notes the company is on track to achieve long-term growth driven by stronger software growth and market share gains in the consulting business.
Last month, IBM reported fourth-quarter earnings of $3.92 per share, which beat the analyst consensus estimate of $3.75. Quarterly revenue came in at $17.55 billion, which beat the analyst consensus estimate of $17.54 billion.
Investors can gain exposure to the stock via First Trust NASDAQ Technology Dividend Index Fund TDIV and FT Vest Technology Dividend Target Income ETF TDVI.
Price Action: IBM shares are down 0.80% at $262.33 at the last check Wednesday.
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