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IBM's Earnings Beat, Guidance Not Enough To Brighten Barclays' View Of The Stock

IBM's Earnings Beat, Guidance Not Enough To Brighten Barclays' View Of The Stock - International Business Machines Corporation NYSE:IBM

Barclays’ Mark Moskowitz expects International Business Machines Corp. IBM 0.02% shares to trade flat to up in the near term, with the 2Q results and C2016 guidance supporting the “self-help” trade.

Moskowitz maintains an Underweight rating on the company, with a price target of $140.

2Q Performance

“Acquisitions helped revenue by 2 points, and cost cuts boosted margin. Strategic imperatives growth decelerated, however, and this is important despite the self-help goodness,” the analyst mentioned.

However, Moskowitz expects the cloud and the general shift toward more agile and nimbler IT deployments to pressure the IBM’s long-term growth profile.

The company reported its revenue and non-GAAP EPS for 2Q mostly in-line with expectations. Revenue declined 2 percent year-on-year, as compared to the 4.6 percent decline in 1Q.

Gross and operating margins improved over the 1Q levels.

C2016 Guidance

IBM reaffirmed its non-GAAP EPS guidance for C2016 of “at least” $13.50 and free cash flow of $11–$12 billion.

Moskowitz believes that “all of this should embolden a large swath of investors who are in the stock for the self-help benefits before lack of revenue growth returns as the bigger pivot point. Bears have some support.”

Although GBS signings improved during the quarter, the revenue declines continue to be an overhand, indicating that large third-party app rollouts still are out of favor.

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