IBM shares surged 5% on Wednesday after the world’s first big computing company beat expectations on third-quarter revenue and gave an outlook that hinted it was back on a growth track after six years in retreat.
There was no initial sign of changes to major brokerage trading recommendations or price targets for International Business Machines (IBM) and most shied away from calling a complete turnaround in the company’s fortunes.
But the results pushed Big Blue shares 4.7% higher to $153.40 in premarket in New York, in stark contrast with a nearly 12% fall so far this year.
“We were pleased to see the quality of IBM’s earnings improve, with IP income and taxes being less of a driver of upside than in prior quarters,” Deutsche Bank analyst Sherri Scribner wrote in a note.
While IBM has struggled more than peers such as Oracle (ORCL) and Microsoft (MSFT) to adjust their approach to a changing market, the quarterly performance of its software business was noteworthy given its presence in key software markets, Jefferies analyst John DiFucci wrote in a note.
IBM’s revenue has fallen for 22 straight quarters as weak demand from customers left its legacy hardware and software businesses stagnating.
The results showed revenue from IBM’s cloud, cybersecurity, and data analytics business rose 11% to $8.8 billion in the quarter, accounting for about 46% of total revenue.
The company’s software revenue also grew for the first time after 13 consecutive quarters of declines.
“We see the business as secularly challenged due to its high exposure to a legacy business model, and see continued margin pressure over the long-term as IBM’s business is pressured by competition from lower-cost offerings and the cloud,” Deutsche Bank analyst Sherri Scribner wrote in a note.
But she added: “We are modestly adjusting our FY-17E EPS higher on a lower share count and some additional mainframe sales.”
Out of 25 analysts covering the stock, only six have a “buy” or higher rating, 15 are on “hold”, and four have a “sell” or lower. They have a median price target of $154.50.
