Several firms are commenting on IBM (NYSE:IBM) after the co reported its Q4 results last night:
- Citigroup reiterates their Buy rating for IBM shares with a revised 12-month target of $115 (from $105). While they acknowledge that there is no near-term catalyst for IBM shares, they are encouraged by multiple signs in the 4Q06 financial results of improvement in the struggling services business and strong momentum in software. Valuation is also among the most attractive relative to growth within the Hardware sector.
4CQ revenue of $26.3B was well above firm's estimate and consensus due to significant upside in both software and services. EPS of $2.20 (excluding tax benefit) was one penny above consensus but two pennies below estimate. $17.8B in services bookings (+55% yoy) was the highest since 4Q02. IBM enjoyed significant acceleration in both short- and long-term bookings growth.
Impressive 11% organic middleware software growth suggests that IBM is gaining share thanks
to recent investments in sales and marketing.
- Morgan Stanley notes that continued momentum in Software, growing traction in Services, and easy YoY Hardware compares in C1Q07 suggest more room for relative stock performance near term. Firm is Overweight IBM and thinks the stock can provide investors with good leverage going into the seasonally weak first half of the year and would accumulate shares on yesterday's after-market dip.
IBM indicated steady demand and a healthy services deal pipeline going into 2007. It also kept its long term target of low-mid single digit revenue growth and 10-12% EPS growth (in-line with consensus), which the firm believes will be achievable given its on-going investments and productivity initiatives.
They tweaked revenues to reflect lower hardware growth and higher software growth in 2007 and FY07 revenues inch down to $94B from $94.4B. Firm increased EPS by 6 pennies in anticipation of more leverage in 2H07 from continued investments.
Maintains Overweight.
- Prudential notes the Hardware segment was the biggest disappointment to 4Q06 results as c/c revenues grew 0% vs. 7% in 3Q06, and gross margins fell 100 bps vs. a positive 60 bps increase in 3Q06. System Z mainframes fell to 1% growth (vs. 22% in 3Q06) and the Microelectronics division dropped sharply to -6% (vs. 29% in 3Q06). Additionally, IBM is not seeing a pick-up in the growth areas of System i and x (blade growth not carrying the revenue). Firm does not see any near-term relief in the Hardware segment over the next few quarters. Software had another strong quarter (up 5% organic) led by key branded middleware growing 21% YOY (10% organic). Software gross margins continued to expand to 86.5%, up 20 bps YOY (vs. 40 bps in 3Q06).
Although 4Q06 results were solid, investors expecting more immediate upside will be disappointed. They are raising 2007 EPS estimates to $6.77 from $6.67, which is entirely due to a lower expected effective tax rate of 28.5%. Reiterates Neutral Weight rating and $100 price target, awaiting more progress in Services and a pick-up in Hardware.
- Goldman Sachs says the IBM earnings stew somehow managed to mix together an even more varied combination of strengths, disappointments, and confusion than usual. While the quarter, and its implications for future growth, was strong and better-balanced than we've seen in over a year, unexpected investments in sales and incremental acquisition expense yielded gross margins that were lower than last year's December quarter in all three of IBM key segments (software, services, hardware). Although IBM's earnings growth continues to point to 10%-12% off of an increasing base, IBM confused the issue for 2007 by throwing a lower tax rate into the mix and implying that earnings could be more backend-loaded than current Street estimates. GSCO is raising their 2007 forecast to $6.74 from prior $6.60 and, although all of this comes from a lower tax rate, they think there could still be additional fundamental upside of $0.05-$0.10.
The stock's reaction after-hours pretty much tells the story and should provide a valuation base, taking IBM's multiple down by over a point and its relative multiple back to the low end (a rounded-up 0.9x the S&P 500) of its traditional range. Although IBM managed to summarily take the wind out of its sails, GSCO is staying with their Buy rating for now based on IBM's current implied multiple. To stay with the stock much beyond the seasonally weakest period for tech, we will need to see early upside.
Notablecalls: The stock traded down to $94 level in after hrs action. Lack of EPS upside coupled with disappointing hardware results will surely take wind out of its sails. I don't think we will see a meaningful bounce today.
- Citigroup reiterates their Buy rating for IBM shares with a revised 12-month target of $115 (from $105). While they acknowledge that there is no near-term catalyst for IBM shares, they are encouraged by multiple signs in the 4Q06 financial results of improvement in the struggling services business and strong momentum in software. Valuation is also among the most attractive relative to growth within the Hardware sector.
4CQ revenue of $26.3B was well above firm's estimate and consensus due to significant upside in both software and services. EPS of $2.20 (excluding tax benefit) was one penny above consensus but two pennies below estimate. $17.8B in services bookings (+55% yoy) was the highest since 4Q02. IBM enjoyed significant acceleration in both short- and long-term bookings growth.
Impressive 11% organic middleware software growth suggests that IBM is gaining share thanks
to recent investments in sales and marketing.
- Morgan Stanley notes that continued momentum in Software, growing traction in Services, and easy YoY Hardware compares in C1Q07 suggest more room for relative stock performance near term. Firm is Overweight IBM and thinks the stock can provide investors with good leverage going into the seasonally weak first half of the year and would accumulate shares on yesterday's after-market dip.
IBM indicated steady demand and a healthy services deal pipeline going into 2007. It also kept its long term target of low-mid single digit revenue growth and 10-12% EPS growth (in-line with consensus), which the firm believes will be achievable given its on-going investments and productivity initiatives.
They tweaked revenues to reflect lower hardware growth and higher software growth in 2007 and FY07 revenues inch down to $94B from $94.4B. Firm increased EPS by 6 pennies in anticipation of more leverage in 2H07 from continued investments.
Maintains Overweight.
- Prudential notes the Hardware segment was the biggest disappointment to 4Q06 results as c/c revenues grew 0% vs. 7% in 3Q06, and gross margins fell 100 bps vs. a positive 60 bps increase in 3Q06. System Z mainframes fell to 1% growth (vs. 22% in 3Q06) and the Microelectronics division dropped sharply to -6% (vs. 29% in 3Q06). Additionally, IBM is not seeing a pick-up in the growth areas of System i and x (blade growth not carrying the revenue). Firm does not see any near-term relief in the Hardware segment over the next few quarters. Software had another strong quarter (up 5% organic) led by key branded middleware growing 21% YOY (10% organic). Software gross margins continued to expand to 86.5%, up 20 bps YOY (vs. 40 bps in 3Q06).
Although 4Q06 results were solid, investors expecting more immediate upside will be disappointed. They are raising 2007 EPS estimates to $6.77 from $6.67, which is entirely due to a lower expected effective tax rate of 28.5%. Reiterates Neutral Weight rating and $100 price target, awaiting more progress in Services and a pick-up in Hardware.
- Goldman Sachs says the IBM earnings stew somehow managed to mix together an even more varied combination of strengths, disappointments, and confusion than usual. While the quarter, and its implications for future growth, was strong and better-balanced than we've seen in over a year, unexpected investments in sales and incremental acquisition expense yielded gross margins that were lower than last year's December quarter in all three of IBM key segments (software, services, hardware). Although IBM's earnings growth continues to point to 10%-12% off of an increasing base, IBM confused the issue for 2007 by throwing a lower tax rate into the mix and implying that earnings could be more backend-loaded than current Street estimates. GSCO is raising their 2007 forecast to $6.74 from prior $6.60 and, although all of this comes from a lower tax rate, they think there could still be additional fundamental upside of $0.05-$0.10.
The stock's reaction after-hours pretty much tells the story and should provide a valuation base, taking IBM's multiple down by over a point and its relative multiple back to the low end (a rounded-up 0.9x the S&P 500) of its traditional range. Although IBM managed to summarily take the wind out of its sails, GSCO is staying with their Buy rating for now based on IBM's current implied multiple. To stay with the stock much beyond the seasonally weakest period for tech, we will need to see early upside.
Notablecalls: The stock traded down to $94 level in after hrs action. Lack of EPS upside coupled with disappointing hardware results will surely take wind out of its sails. I don't think we will see a meaningful bounce today.
No comments:
Post a Comment