TLDR
- Oppenheimer initiated coverage on IBM with an Outperform rating and a $360 price target based on 5.2x 2027 EV/sales estimates
- The firm expects double-digit revenue growth from IBM’s software portfolio, driven by strength in Automation (HashiCorp) and improving RedHat performance
- IBM announced a partnership with Cisco Systems to build large-scale quantum computers, with a proof-of-concept expected within five years
- IBM stock rose 2.9% on the quantum partnership news, trading at $296.81 after pulling back from its November 12 record high of $324.90
- The company’s 10-day put/call volume ratio of 0.91 ranks higher than 90% of readings from the past year, indicating increased put activity
IBM received a boost from Wall Street on Friday as Oppenheimer initiated coverage with an Outperform rating. The firm set a price target of $360 for the next 12 to 18 months.
The stock climbed 2.9% to $296.81 following the rating and news of a quantum computing partnership. IBM is working to snap a three-day losing streak after reaching a record high of $324.90 on November 12.
International Business Machines Corporation, IBM
Analyst Param Singh based the price target on 5.2x the firm’s 2027 EV/sales estimate. The analyst pointed to IBM’s software operations as a key growth driver.
Oppenheimer expects IBM’s software portfolio to deliver double-digit revenue growth. The firm cited strength in Automation, primarily through HashiCorp, as a major contributor.
RedHat is also showing improving growth trends. These two areas form the core of IBM’s transformation into a higher-margin software business.
The consulting segment should grow at a low single-digit pace. Demand is recovering in application development and management services.
Software Transition and AI Opportunities
IBM’s artificial intelligence position offers additional revenue potential. The company is positioned to benefit from enterprise clients deploying AI tools across their operations.
Oppenheimer highlighted revenue opportunities from creating and managing AI applications, including Generative AI. The firm expects strong expansion activity with existing customers.
The shift toward software should drive gross margin improvement. As software becomes a larger share of the business, pre-tax margins should rise.
Singh wrote that the stock could see a higher valuation. This would happen as investors better recognize the extent of IBM’s pivot to software.
Quantum Computing Partnership with Cisco
IBM announced a partnership with Cisco Systems to build large-scale quantum computers. The two companies plan to create a network of fault-tolerant quantum systems.
The companies aim to complete the project by early next decade. They hope to offer a proof-of-concept within five years.
Year to date, IBM stock has gained 35.2%. The equity has performed well despite recent volatility.
Options activity shows increased put trading over the past two weeks. IBM’s 10-day put/call volume ratio of 0.91 at ISE, CBOE, and PHLX ranks higher than 90% of readings from the past year.
Calls still outpace puts on an absolute basis. However, the elevated put activity indicates some traders are positioning for potential downside.
IBM’s Schaeffer’s Volatility Scorecard stands at 93 out of 100. This suggests the stock tends to outperform options traders’ volatility expectations.
The consulting business should benefit from steady demand growth. Application development and management services are seeing increased client interest.
IBM’s pre-tax margins are expected to expand. The company is achieving operating leverage through its product mix shift.
The software portfolio includes key automation tools. HashiCorp has been a strong performer within this segment.
RedHat’s growth trajectory is improving. The platform continues to gain traction with enterprise customers.
Oppenheimer sees revenue optionality from AI applications. Both creation and management of these tools present opportunities.
The partnership with Cisco represents a long-term investment in quantum technology. Both companies are committing resources to develop fault-tolerant systems.
IBM stock closed the previous session after three consecutive days of losses. The quantum partnership announcement helped reverse the recent downtrend.
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