IBM (IBM.US) shares soar to record high as Stifel upgrades to 'buy' ahead of Q3 earnings
IBM (IBM.US) received a buy rating from Stifel ahead of its upcoming Q3 earnings release, with the stock closing at an all-time high earlier in the week. Stifel also raised its price target on IBM to $246 from $205. Additionally, while Stifel expects IBM's revenue to be below the previous quarter due to seasonal factors, it expects EPS to beat expectations. IBM closed at a record high of $235.26 on Monday and continued to soar on Tuesday, hitting a new high of $237.37.
IBM is set to report its 2024 Q3 financial results after the market closes on October 23. Analysts expect revenue of $15.06 billion and adjusted EPS of $2.22. Last quarter, IBM's EPS beat expectations by $0.26 and revenue was $1.47 billion above expectations.
Looking to 2025, Stifel believes IBM's recent acquisitions and a new mainframe cycle will drive revenue growth.
IBM is expected to complete its $6.4 billion acquisition of HashiCorp (HCP.US) in Q4 2024, but regulatory reviews could push the deal into early 2025. IBM completed its $2.1 billion acquisition of StreamSets and webMethods from Software AG on July 1.
Stifel expects these acquisitions to add 4% or more to IBM's software segment revenue in 2025. The investment firm also believes IBM will benefit from enterprise license renewals in 2025, particularly in Q4. More importantly, Stifel expects IBM's next mainframe cycle to begin in the first half of 2025.
Stifel analysts led by David Grossman said in an investor note: "IBM's last mainframe cycle was launched in Q2 22 with z16." "Mainframe cycles typically last 10-12 quarters, and we expect the next cycle to begin in H1 2025."
"Segment reporting is not as detailed," he added. "However, historically, mainframe cycles have added ~$1.5 billion in revenue to the infrastructure segment in the first 12 months."
IBM's stock has soared 67% over the past year and has set new highs in the past month.