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Analysts On IBM: Solid Growth, But Cloud Is A Weak Spot

Jayson Derrick

IBM (NYSE: IBM) reported second-quarter results, which one analyst praised for showing growth in important areas while another said cloud revenue was a "real weak spot."

The Analysts

KeyBanc's Arvind Ramnani maintains at Sector Weight.

Morgan Stanley's Katy Huberty doesn't rate IBM's stock, but issued comments in a report.

Moffett Nathanson's Lisa Ellis talked IBM on CNBC.

Shares of IBM were trading higher by 4.7% to $149.89 Thursday afternoon.

KeyBanc: Key Takeaways

IBM's report was mostly inline with expectations and management could offer new details on its cloud business on Aug. 2 when the company is likely to update its 2019 targets, Ramnani wrote in a note. Some key takeaways from include:

  • Cloud & Cognitive Software was the best performing segment from new hybrid cloud offerings and security software and services.
  • Cloud revenue as a whole was "rather disappointing" as it decelerated from 12% year-over-year growth in the first quarter to 8% in the second quarter.
  • Management maintained its non-GAAP EPS at $13.90 and free cash flow at around $12 billion.

Related Link: Wedbush: IBM-Red Hat Deal Holds Execution Risks

Morgan Stanley: Growing Where It Needs to

IBM's quarter was highlighted by "growth in all the right places," Huberty wrote. Specifically, all business lines exposed to helping customers digitally transform towards cloud/cognitive enterprises showed "strong results."

Huberty said hybrid cloud, data platform and security spending were "areas of strength" and coupled with the GBS business represents the company's "growth engine." Management's tone on the conference call also "seemed bullish" although minimal commentary on forward trends were provided ahead of the Aug. 2 event.

Moffett Nathanson: Cloud A 'Real Weak Spot'

IBM's headline numbers represents a clear beat versus estimates but digging beyond the headline numbers shows a "real weak spot," Ellis said on CNBC. Cloud revenue across the entire business decelerated from the first quarter and the Global Technology Services business was weaker-than-expected.

IBM's earnings report does nothing to change Ellis' stance on IBM's outlook and she continues to expect "little if any" earnings growth over the next three years, with or without RedHat.

Latest Ratings for IBM

Date Firm Action From To
Jul 2019 Maintains Buy
Jul 2019 Reinstates Neutral
Jun 2019 Initiates Coverage On Outperform

View More Analyst Ratings for IBM
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