IBM Is An 'Attractive Growth Story For Patient Investors'

Argus raised its price target for International Business Machines Corp. IBM following the IT giant’s annual investor presentation earlier this month.

IBM is changing with the times — with a slowing hardware business and growing cloud computing and artificial intelligence initiatives — and Argus research director Jim Kelleher is bullish on the company’s transformation.

Argus reiterated a Buy rating on IBM and raised its price target from $185 to $192.

“We believe that the multiyear relative underperformance of the stock and signs of continued acceleration in strategic businesses creates an attractive opportunity for patient investors,” Kelleher said.

After 19 consecutive quarters of revenue decline, Argus is projecting a possible return to positive revenue for IBM in the third or fourth quarter of 2017.

Related link: IBM Breaks Innovation Record In 2016

Cloud Competitors

Amazon.com, Inc. AMZN’s Amazon Web Services dominates the cloud services sector, with a 40 percent market share, according to Argus.

IBM, Alphabet Inc GOOGL and Microsoft Corporation MSFT each hold about 20-25 percent of the market, the firm said.

IBM leads the niche segment of hosted private cloud, Keheller said, “signaling it has been able to transition over its legacy industry-leading clients in middleware, [Internet technology outsourcing] and [global business services].”

Moving Legacy Customers Into Growth Areas

IBM CEO Ginny Rometty outlined during an investor presentation just how high the company’s penetration is in multiple sectors.

In the banking industry, 97 percent of large banks are on IBM platforms, according to Argus. The company’s products are used at 90 percent or more of airlines, insurance companies and retailers, the firm said.

“Many of these customers are tied to IBM via legacy offerings such as middleware, IT outsourcing or global business. The goal is to move these customers to Watson and the IBM cloud,” Keheller said in the note.