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Morgan Stanley Lauds IBM's Q2 Results; Also Highlights Concerns

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  • Morgan Stanley analyst Erik Woodring maintained International Business Machines Corp (NYSE: IBMwith an Overweight and cut the price target from $157 to $155.

  • Woodring highlighted that IBM reported a 2% revenue and 4% non-GAAP EPS beat in 2Q22 mainly due to robust Consulting results and a solid first month of z16 sales, which offset a slightly weaker-than-expected software quarter.

  • He noted that management continued to speak to a robust demand environment for IBM's solutions and reiterated confidence in growing CY22 revenue at the high-end of its mid-single digit Y/Y medium-term range (in constant currency).

  • However, he suggested that the sharp move in the USD YTD will have more significant revenue and profit impact than previously expected, with inflationary pressures primarily in the Consulting business as another incremental headwind to profitability.

  • As a result, Erik's CY22 revenue estimates declined to $59.4 billion (from $60.3 billion), while his CY22 non-GAAP EPS dropped to $9.20 (from $9.78).

  • Overall, 2Q was a solid (but by no means flawless) quarter in his view, especially in light of what Erik expected would be a challenging 2Q reporting season for Hardware companies due to ongoing supply chain challenges, pockets of deteriorating demand, and currency headwinds.

  • As a result, his Overweight thesis did not materially change post-earnings, and Erik continues to see IBM as a defensive, late-cycle outperformer in an otherwise challenging market backdrop.

  • Price Action: IBM shares traded lower by 5.82% at $130.09 on the last check Tuesday.

Latest Ratings for IBM

Date

Firm

Action

From

To

Jan 2022

BMO Capital

Maintains

Market Perform

Jan 2022

UBS

Downgrades

Neutral

Sell

Jan 2022

Goldman Sachs

Initiates Coverage On

Neutral

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