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IBM ( IBM ) was trading down Tuesday, following a first-quarter earnings report late Monday that beat estimates but still left room for concern. IBM has been undergoing a major transition, shedding older technologies while making a concerted push into growth areas such as cloud computing, Big Data analytics, security and mobile computing — areas it calls strategic imperatives. The transition helps explain why revenue growth has declined each quarter for the past four years. In its Q1 earnings results, IBM reported revenue of $18.7 billion, down 4.6% from the year-earlier quarter but edging the Wall Street consensus estimate of $18.3 billion. Revenue from strategic imperatives rose 14%. Total cloud revenue rose 34%. Earnings per share ex items of $2.35 easily beat views of $2.09, as polled by Thomson Reuters, but were down 19% and marked the fourth quarter in a row of EPS declines. IBM stock was down more than 6%, near 143, in afternoon trading in the stock market today , presumably on the view that Q2 expectations are below estimates. IBM does not provide formal quarterly guidance, but its implied EPS guidance of $2.85 for Q2 is below the consensus estimate of 3.01. Despite the Q1 beat, IBM did not increase but instead maintained its full-year earnings outlook. IBD’s Take: How healthy is IBM’s stock and how does it stack up vs. rivals? Find out at IBD Stock Checkup RBC Capital Markets analyst Amit Daryanani maintained a sector perform rating on IBM stock, and a price target of 155. “We believe the competitive challenges are emerging from companies seeking to build a business model similar to IBM’s, notably Hewlett-Packard Enterprise ( HPE ), Cisco ( CSCO ), Oracle ( ORCL ), EMC ( EMC ), and Dell,” he wrote. Of these competitors, he said, Hewlett-Packard is the closest. Another is Cisco. ‘Attempting To Recreate The IBM Model’ “Beyond Hewlett-Packard and Cisco, there are also others attempting to recreate the IBM model,” he wrote. A harsher report on IBM came from Credit Suisse analyst Kulbinder Garcha, who reiterated an underperform rating and a price target of 110 on IBM stock. “We believe the quality of earnings was again low and the manner in which IBM has chosen to manage its business seems unsustainable,” Garcha wrote. “We believe the secular and structural challenges facing IBM remain, and specifically see limited improvement in Services and Software margins.” UBS analyst Steven Milunovich maintained a neutral rating on IBM but raised his price target to 150 from 132. “The quarter was mixed with revenue and EPS beating due to currency improvement, acquisitions, and the Japan tax rebate,” he wrote. “We give IBM credit for changing the narrative,” with an emphasis on becoming a leader in the new category of Cognitive Computing, which includes its Watson computer business, he wrote. Drexel Hamilton raised its revenue forecast, maintained its EPS projection and raised the price target to 166 from 160. Scalper1 News
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