Big Blue's Big Beat: Is IBM's Q3 The Real Deal Or A Flash In The Pan?

Shares of International Business Machines Corp. IBM were trading higher by more than 5 percent Wednesday morning after "Big Blue" impressed investors in its third-quarter report, but didn't win over some of Wall Street's bears.

Bernstein's Toni Sacconaghi maintains a Market Perform rating on IBM's stock with an unchanged $150 price target, which implies some downside from Wednesday's levels.

IBM's third-quarter print was "encouraging" and included an earnings and revenue beat and a 9 percent organic growth in strategic imperatives, Sacconaghi commented in his report. However, earnings were likely "meaningfully" boosted by the launch of the company's z14 mainframe along with "unusual strength" in the transaction software business, which pulled in revenues from the fourth quarter.

Adjusting IBM's earnings report for these two outliers implies that overall revenue growth would be down 3 percent instead of down 1.3 percent and strategic imperative growth would have come in at 6 to 7 percent, the analyst said. As such, investors have reason to question if the earnings report marks a turnaround point for the company or merely the "confluence of two positive (and potentially related) cyclical forces)."

"Overall, we continue to believe that IBM is still very much in the throes of a turnaround, and do not view Q3 results as an inflection point," the analyst opined.

While IBM should be able to achieve its fiscal 2017 earnings per share guidance, the consensus estimate of $13.83 per share in fiscal 2018 looks too high.

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