A Big Day For Big Blue

| About: International Business (IBM)
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IBM (NYSE:IBM) shares have followed up Tuesday night’s gains with a solid performance on Wednesday, almost single-handedly driving the Dow Jones Industrial Average past the 12,000 level.

(You can do the math yourself; according to my colleagues over at DJIndexes, the current divisor for the Dow is 0.12493117, which basically means that a $1 move by any stock in the index equals 8 points on the Dow. Ergo, IBM’s $4 move adds 32 Dow points. A 50-point move today would results in a close above 12,000.)

The consensus view on the Street is that the stock is cheap, and that the company is seeing good growth in its software and service businesses. Disk Drives? PCs? Who needs ‘em! Not IBM, which has exited both of those businesses, among others. Here’s a quick review of some of Wednesday's commentary on the computer giant. I’ll start with the one downgrade I saw today, move on to more celebratory chatter, and leave you with the thinking of what surely must be the most bearish analyst on the Street on IBM:

  • Richard Farmer, Merrill Lynch: IBM posted a very strong quarter…We see IBM as a world class company with strong management, sound strategy and healthy operations…The besttime to buy IBM is when execution is weak, sentiment is negative and the stock washed out (not now)…We see risk/reward as balanced above $90 and revise our rating to Neutral from Buy.
  • Laura Conigliaro, Goldman Sachs: Upgrade to Buy…Our higher earnings forecast for 2007 has in turn pushed up our target price from $92 to $100 (15% upside), a level that we think is probably attainable within a 1-2 quarter timeframe. While we would prefer not to be upgrading IBM coming off its strong earnings report, we think the stock still has room, particulary in the current quarter and given the strength of software.
  • Andrew Neff, Bear Stearns: While we can’t expect results like this every quarter, IBM reported strong revenue/EPS upside from strength in hardware/software along with margin improvement. Still selling at a meaningful (20%) discount to its peer group of mature mega-cap, low-growth comps, we believe IBM deserves more credit for consistency and modest improvement in sales growth, meriting upside to around $98.
  • Toni Sacconaghi, Bernstein Research: We continue to believe that IBM’s valuation is fundamentally attractive, that earnings are likely to continue to beat consensus throughout 2007, and that IBM’s high level of recurring revenue and profitability generally make it a relatively “safer” technology holding. We also note that the stock has historically performed best in the fourth quarter on both an absolute and relative basis.. Moreover, we are encouraged that Q4 could be a solid one for IBM - particularly for revenue growth and signings - which have historically been important catalysts for the stock.Raising price target to $100, from $95. Rating: Outperform.
  • Robert Semple, Credit Suisse: Given the secular and cyclical pressures facing IBM’s services business, we believe the investments in the company’s software offerings are likely to be the biggest driver to profitability in the coming quarters…For a company of its size and breadth, IBM is often overlooked by investors looking for more focused pure-plays…We believe IBM offers a compelling risk-reward profile. Price target to $100, from $90.
  • Eric Ross, ThinkEquity: Investors should focus on its services business (50% of revenues), as revenue remains weak. We reiterate our Sell Rating, but raise our price target to $70 from $60.
  • As usual, there are more - many, many more, in this case - but you get the idea.

    IBM shares were up $3.97 at $90.92.

    IBM 1-yr chart:

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