IBM shares surge on analyst confidence
Big Blue's second-quarter performance may not have wowed Wall Street, but a company executive's performance in front of analysts has quelled second-half jitters
In an unusually long conference call yesterday to discuss IBM's quarterly results, chief financial officer John Joyce methodically reviewed each segment's performance, emphasizing its position for future growth. Joyce's number-crunching delivered the message: IBM is a third- and fourth-quarter story.
Shares of the Armonk, N.Y.-based computer maker rose 5 percent to $114.50 in midday trading today, as many financial analysts either reiterated or upgraded their stock recommendations.
Yesterday, IBM beat analysts' lowered expectations by 6 cents a share but failed to meet growth expectations. Big Blue reported earnings of $1.9 billion, or $1.06 per share, for the second quarter, beating the lowered consensus estimate of $1 per share on First Call/Thomson Financial.
Despite Joyce's rallying of the financial troops yesterday, even optimistic analysts remained cautious. In a research note issued this morning, Merrill Lynch analyst Steven Milunovich said he believed "IBM is a second-half story" but warned he'd be even more optimistic if he "had confidence in execution."
Overall, Wall Street rallied behind a resurgent IBM, which is struggling through product transitions affecting its PC divisions, a gaffe in bringing 10,000-rpm hard drives to market, and lingering sales sluggishness due to the Year 2000 technology glitch.
Prudential Securities analyst Kimberly Alexy reiterated her "accumulate" with a target price of $130 per share. Goldman Sachs analyst Laura Conigliaro maintained IBM on her ''recommend list."
Gary Helmig at Wit SoundView raised his estimate to ''strong buy'' from ''buy'' and target price to $145 per share from $140. Credit Suisse First Boston analyst Amit Chopra reiterated ''buy'' and a 12-month target price of $125 per share, as did PaineWebber analyst Donald Young, who set his target price at $140 per share.
Philip Rueppel at Deutsche Banc Alex Brown reiterated his ''strong buy." Analyst George Elling at Lehman Brothers raised IBM to ''buy'' from ''outperform'' and set a new price target of $160 per share from $150.
IBM largely beat analyst expectations by controlling expenses, but continued declines in mainframe sales and weak performance in services took a toll on revenue, Milunovich said.
"We think the key to long-term appreciation is figuring out if IBM is a new-technology or old-technology stock. It's some of both now," he said.