Analysts at J.P. Morgan saw the dip as a buying opportunity:
“We recommend that investors take advantage of any sell-on-the-news’ weakness in shares of IBM. We reiterate our overweight rating and lift our recently raised estimates. While software growth in 1Q was slightly lighter than we expected, we expect a reacceleration as recently closed deals stand to have a full quarter impact on 2Q in contrast to the partial impact on 1Q.”
Morgan maintained its $225 price target on the stock, but a number of other analysts raised theirs. One was Stifel Nicolaus, which boosted its 12-month target to $230, citing among other things the company’s slightly increased EPS guidance for 2012.
Still, others worried the flat sales may be a signal that IBM’s big lead over its competitors is starting to shrink. RBC Capital Markets analyst Amit Daryanani expressed this opinion in a research note quoted in an article on Investors.com:
“Competitive challenges are emerging from companies that are seeking to build a business model similar to IBM’s. As an increasing number of competitors move toward the model of partnering services, hardware and software, we believe that the competitive advantage IBM has long enjoyed from a broad product portfolio and services could erode.”
Emerging Markets Have Big Potential for IBM
Despite the rising competition, IBM remains a market leader. At the same time, it’s a company in transition. But as Buffett clearly realizes, it stands to gain as it continues its move into services and software.
It’s also making big headway with its strategy to grow overseas, particularly in emerging markets like the BRIC countries (Brazil, Russia, India and China), where its revenue jumped 10% in the latest quarter, compared to a 1% rise in the Americas and a 2% drop in Europe.
As The Economist put it after Buffett bought his big stake, “No one ever got fired for buying IBM, goes an old adage in corporate information technology. In the financial world, no one ever gets fired for investing like Mr. Buffett.”