IBM's stock rallies as RBC's target implies 25% upside

By Tomi Kilgore

Big Blue's stock is back on track for longest monthly winning streak in 14 years

Shares of International Business Machines Corp. rallied Wednesday after RBC Capital analyst Matthew Swanson set a Wall Street-high price target that suggests a nine-year high is on the horizon.

"We're optimistic on the competitive positioning and unique role that IBM plays in the tech eco-system with its value proposition best represented by enabling efficient digital transformation through consulting and software," Swanson wrote in a note to clients.

He started coverage of the diversified information-technology company, known by many as Big Blue, with an outperform rating. He set his price target on the stock (IBM) at $188, which is now the highest of the 18 Wall Street analysts surveyed by FactSet, well above the $175 target set by Melius Research's Ben Reitzes.

The stock hasn't closed as high as $188 since April 15, 2014, when it closed at $188.19. The new target implies 25.5% upside from Wednesday's close.

IBM's stock rallied 2.3% to $149.83, the highest close since Dec. 14, 2022. The rally also puts the stock back into positive territory for the month, with a gain of 2.0% so far in September.

The stock is back on track for a fifth straight monthly gain, which would be the longest such streak since the six-month winning streak that ended in December 2009.

Following IBM's spinoff of Kyndryl Holdings Inc. (KD), which was completed in November 2021, approximately three-quarters of IBM's revenue is seen coming from software and consulting, and about half of the revenue is seen as recurring.

But investors still seem to view IBM as a hardware and services company, as Swanson said the company's valuation is roughly in line with consulting peers but at a "significant discount" to software peers.

"We feel the company's software business is misunderstood, and undervalued, particularly its role in hybrid environments, [artificial intelligence] and spend optimization," Swanson wrote.

IBM's stock has gained 6.4% year to date, while the SPDR S&P Software and Services exchange-traded fund XSW has run up 18.1% and the Dow Jones Industrial Average DJIA has tacked on 3.9%.

-Tomi Kilgore

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09-21-23 0839ET

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