IBM "whistling past the graveyard" as Wall Street cheers

IBM's outlook for 2001 renewed enthusiasm for the tech sector as Wall Street analysts cheered Big Blue's first-quarter results. Goldman Sachs put IBM on its "recommended list."

Shares were up $5.75 to $112.25, or 5 percent, at the opening bell, significantly above where they were at the start of this week at $96.75.

The company met Wall Street estimates with earnings of $1.75 billion, or 98 cents a share. Sales grew 9 percent to $21 billion, from $19.3 billion during the first quarter of 2000. That's just above First Call's consensus forecast of $20.79 billion.

But more importantly, IBM reiterated that it was comfortable with 2001 earnings estimates of $4.87 a share. The outlook indicated IBM was one of the few tech companies "whistling past the graveyard," said CS First Boston analyst Kevin McCarthy.

Most analysts bumped up their estimates for IBM.

Goldman Sachs analyst Laura Conigliaro added IBM to her "recommended list" Thursday, along with Siebel Systems (Nasdaq: SEBL), which also rose $8.04 to $42.02.

Conigliaro said the tech sector is taking its "first steps" towards a turnaround and pegged IBM as one of the best stocks of the bunch. IBM is "an easy way for cash-heavy investors to begin to get back into technology," Conigliaro wrote.

Though the analyst cautioned that the IBM's second quarter will not be as strong as the first, she was by far the most upbeat; she raised her earnings target for the year, and put a $145 price target on the stock.

Bear Stearns analyst Andrew Neff also cautioned that the company's second quarter could be tough. "While a majority of their business lines are at positive inflection points currently, the earnings comparisons get tougher in the second half, particularly for the services business," Neff wrote. The analyst was mostly positive on the stock however, and maintained his "buy" rating and estimates for the year.

Not all analysts were upbeat on the stock. McCarthy maintained a "hold" rating and left his estimates unchanged. The first quarter was an easy comparison, the analyst said, and likely represented "IBM's peak revenue growth quarter for the year."

McCarthy recommended investors cash out of IBM shares at $120 "based on (a) belief that the second quarter could prove problematic relative to unaltered Street views."

IT services market
IBM's outlook also boosted optimism for the IT services sector. Electronic Data Systems (NYSE: EDS) rose 59 cents to $62.95, and Computer Sciences (NYSE: CSC) was up 27 cents to $36.99 on the news.

"Due to its size, IBM Global Services results serve as a relatively good proxy for the overall status of the IT services industry," UBS Warburg analyst Adam Frisch wrote in a research note.

IBM's results implied growth in Asia and Europe is stronger than in the United States, demand in the outsourcing segment is increasing, and market demand is favoring large, global players with comprehensive offerings, Frisch noted.

Frisch said IBM's results bode particularly well for EDS, which reports results April 25, but remained cautious on Computer Sciences, which reports May 14.