🔮 Better than the Oracle? Our Fair Value found this +42% bagger 5 months before Buffett bought itRead More

'A Place to Hide': IBM Stock Pops on Morgan Stanley Upgrade to Overweight

Published 04/14/2022, 07:24 PM
© Reuters.
US500
-
MS
-
IBM
-

Morgan Stanley (NYSE:MS) analyst Erik Woodring upgraded IBM (NYSE:IBM) to Overweight from Equal Weight with a price target of $150.00 per share, up from $147.00.

The analyst argues that IBM offers a shelter for investors looking to “hide” amid growing macro risks. He reminds investors that IBM is negatively correlated with PMIs and historical late-cycle outperformance.

“While a recession isn't yet the base case, our US Economics team sees rising risk of a US recession and forecasts decelerating PMIs, indicative of a late cycle when IT Hardware stocks typically underperform the S&P 500. What's more, our recent AlphaWise CIO Survey and VAR checks suggest hardware budgets are about to be cut as companies maneuver geopolitical uncertainty and rising costs,” Woodring said in a client note.

Woodring reiterates that the IBM upgrade is a relative call as the company is well-positioned to “weather macro storm.”

“IBM is likely to outperform in a scenario of IT hardware budget cuts, with over half of revenue derived from more defensive recurring revenue streams and only 20% of IBM's revenue directly tied to hardware and related OS revenue. In fact, IBM shares have historically been negatively correlated with PMIs and shares typically outperform our IT Hardware coverage late cycle on a combination of lower earnings risk and far less multiple compression. These factors combined with the fact that IBM will be entering mainframe and ELA cycles in 2H give us confidence the business is positioned to outperform through the rest of this year,” the analyst added.

BofA analyst Wamsi Mohan is also bullish on IBM although he lowered estimates ahead of the company’s Q1 earnings report that is due next Tuesday.

“Investors are looking for IBM to report consistent quarters of revenue beats, which we believe is achievable (provided no macroeconomic shock to global economies). Reiterate Buy on expectations that the company will achieve its mid-term rev/FCF targets,” Mohan wrote in a memo.

IBM stock price is up nearly 2% in pre-open Thursday.

By Senad Karaahmetovic

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.