- "We think IBM (IBM +0.5%) will continue to be a critically important IT company long-term due to its deep R&D investments, but we think the company faces a period of market transition," says Jefferies' James Kisner, launching coverage on Big Blue (as part of a sector launch) with an Underperform rating and $163 target.
- Like many other analysts, Kisner is worried about the impact of the cloud transition - both the adoption of cloud/SaaS apps and public cloud infrastructure services (often running on white-label hardware). He also highlights a broader shift in IT spend from "legacy" vendors as investments are made in "growth initiatives."
- In addition, Kisner echoes sell-side concerns about IBM's earnings quality: He thinks the company is respectively too dependent on vendor financing and buybacks for sales and EPS growth, and notes free cash flow has trailed net income.
- In spite of the launch, IBM is up modestly on a down day for tech. Q3 results are due on Oct. 20.