Wall Street’s view of IBM stock
Previously in this series, we looked at some aspects of International Business Machines’ (IBM) value proposition in the US software industry. We explored the company’s forward dividend yield compared to those of peers, including Microsoft (MSFT), Oracle (ORCL), and SAP (SAP), as of July 20, 2016. We also looked at the forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples of these players.
Now let’s take a look at select market-centric views and metrics for IBM, starting with Wall Street analyst views of the company. As you can see in the graph below, of the 27 analyst recommendations on IBM stock, 56% were “hold” as of July 8, 2016. About 26% were “buy” recommendations, and 19% were “sell.”
Wall Street analyst views of IBM remained unchanged after the company’s fiscal 2Q16 results. A few research houses raised their price targets for IBM’s stock, after the company’s fiscal 2Q16 results. Citigroup raised IBM’s stock price target to $160 from $140, while Morgan Stanley (MS) raised its price target to $182 from the previous $168.
Price performance and target prices
IBM’s stock price movement during the past month has been positive. As of July 20, 2016, the company’s stock rose by ~5.2%. After touching a five-year low in late 2015 and dipping in February 2016, IBM’s stock recovered and rose by ~12%.
Despite continuing with its no revenue growth trend, IBM’s fiscal 2Q16 results beat analyst expectations. Moreover, IBM’s Strategic Imperatives segment continued to post double-digit growth and their contribution to company’s overall revenues increased to 13% in fiscal 2Q16. This provided a boost to IBM’s stock, which rose by ~2.6% on July 18, 2016, after the 2Q16 results were announced.
The Wall Street consensus target price for IBM is $145.36 per share. The median target price was $150 as of July 20, 2016. The share price of IBM’s stock was $159.58 on July 20, 2016.
Investors interested in gaining exposure to IBM can consider investing in the SPDR S&P 500 ETF (SPY), which has an exposure of 8.7% to application software and invests ~0.7% of its holdings in IBM.