On Tuesday, BofA Securities maintained a Buy rating on IBM shares (NYSE:IBM), with a steady price target of $200.00. The firm's stance comes after a discussion with IBM's CEO, Arvind Krishna, as part of their 'View from the Top' series. The company's strategic emphasis on portfolio optimization was highlighted during the call, with approximately 75% of IBM's business now concentrated in Software & Consulting.
The tech giant is poised to generate cumulative cash flows exceeding $19 billion from calendar year 2024 to 2026, after accounting for dividend payouts. This financial capacity, along with the potential to borrow, is expected to support IBM's continued investment in mergers and acquisitions. The company anticipates that most acquisitions will fall within the $1 billion to $10 billion range, which should bolster revenue and free cash flow over time.
Over the course of the last four years, under Krishna's leadership, IBM has completed 39 acquisitions, primarily in the software sector, with some in consulting. These acquisitions are part of IBM's ongoing efforts to drive incremental growth and enhance its free cash flow.
BofA Securities' positive outlook on IBM is also supported by what it sees as a robust turnaround story.
"We maintain a Buy rating on IBM as the turnaround at IBM (rev growth and FCF improvement) continues, with a defensive portfolio, attractive dividend yield and underappreciated AI capabilities", BofA analyst ended the note.
These factors collectively underpin the firm's Buy rating on IBM stock.
InvestingPro Insights
Following the upbeat assessment by BofA Securities, InvestingPro data further strengthens the case for IBM's (NYSE:IBM) financial robustness. With a market capitalization of $179.33 billion, IBM stands as a formidable entity in the tech sector. The company's P/E ratio is currently at 23.78, with a slight adjustment to 22.73 when looking at the last twelve months as of Q4 2023, indicating a stable valuation relative to earnings.
Investors also take comfort in IBM's consistent dividend track record. An InvestingPro Tip highlights that IBM has not only maintained dividend payments but has raised them for 54 consecutive years, showcasing a strong commitment to shareholder returns. Additionally, the company's dividend yield as of early 2024 is 3.46%, which is considered attractive, especially when combined with a 59.92% total return over the past year, reflecting significant share price appreciation.
Another InvestingPro Tip points out that IBM has seen a large price uptick over the last six months, with a 33.75% total return in that period, and is currently trading near its 52-week high, at 96.48% of the peak price. This momentum may suggest investor confidence in the company's growth trajectory and strategic acquisitions.
For readers interested in a deeper dive into IBM's financials and future prospects, there are additional InvestingPro Tips available. With a broad analysis covering aspects such as earnings revisions by analysts and the company's performance within the IT Services industry, InvestingPro offers a comprehensive view. To access these insights and more, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. In total, there are 12 more InvestingPro Tips listed for IBM, which could further inform investment decisions.
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