On Monday, UBS made an adjustment to the stock price target of IBM (NYSE:IBM), increasing it to $130.00 from the previous $125.00, while keeping a Sell rating on the stock. The adjustment follows IBM's recent sale of its Weather business and a revision of the company's reportable segment data for calendar years 2022 and 2023.
The revisions to IBM's segment reporting have led UBS to alter its forecasts for the company's revenue growth and profit margins. Specifically, the forecast for IBM's Software revenue growth in calendar year 2024 has been raised to 5.7% from 5.2%. This update is based on an estimated 12.5% decline in Weather revenue in calendar year 2023, along with a 5% decrease in "Security Services" revenue.
Conversely, UBS has revised its growth forecast for IBM's Consulting revenue in calendar year 2024 down to 4.6% from the previously estimated 5.1%. This change reflects the inclusion of Security Services in the segment.
Moreover, the removal of stock-compensation and interest expenses from the segments has resulted in an increase in the restated Software pre-tax income (PTI) margins for calendar year 2023, rising by 500 basis points to 30% from the previously reported 25%.
For the first quarter of 2023, the restated Software PTI margins are reported at 24.7%, which is 500 basis points higher than the previously reported 19.7%. Similarly, the restated Consulting PTI margins for the same period are now 8.2%, up from the 7.7% margin that was reported earlier. These revised figures reflect the mechanical changes in segment reporting and do not impact IBM's historical consolidated results.
InvestingPro Insights
In light of UBS's recent adjustments to IBM's price target and segment reporting, it is worth considering additional insights from InvestingPro. IBM has displayed a commendable track record of raising its dividend for 28 consecutive years, which may interest income-focused investors.
Moreover, the stock has shown low price volatility, a characteristic that could appeal to those looking for stable investment options. With a market capitalization of $166.46 billion and a P/E ratio of 22.02, IBM stands as a significant player in the IT Services industry, underscored by a revenue growth of 2.2% for the last twelve months as of Q1 2023.
InvestingPro Tips further reveal that IBM has maintained dividend payments for an impressive 54 consecutive years and has been profitable over the last year. The company is also anticipated to be profitable this year, according to analysts. For investors seeking more detailed analysis, there are additional InvestingPro Tips available for IBM, which you can explore with a subscription. Use the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription. This could provide a deeper understanding of IBM's financial health and market position, especially pertinent after the company's recent business sale and segment reporting revisions.
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