IBM (IBM, Financial) has been upgraded to a "buy" rating by Stifel ahead of its Q3 earnings report, after the stock recently hit an all-time high. Stifel also raised IBM's price target from $205 to $246. Despite anticipating a seasonal dip in revenue, Stifel expects IBM's earnings per share to surpass expectations. Recently, IBM closed at a record $235.26, and climbed further, reaching an intraday high of $237.37. IBM is set to release its Q3 2024 financial results on October 23. Analysts project revenue at $15.06 billion and adjusted earnings per share at $2.22. Last quarter, IBM beat EPS estimates by $0.26 and revenue by $1.47 billion.
Looking ahead to 2025, Stifel anticipates that IBM's recent acquisitions and the upcoming mainframe cycle will drive revenue growth. IBM's $6.4 billion acquisition of HashiCorp (HCP) is expected to conclude in Q4 2024, although regulatory scrutiny may delay it to early 2025. On July 1, IBM completed a $2.1 billion acquisition from Software AG, purchasing StreamSets and webMethods. Stifel predicts that these acquisitions could boost IBM's software segment revenue by 4% or more by 2025. The investment firm also foresees benefits from enterprise license agreement renewals in 2025, especially in Q4. Moreover, the next mainframe cycle is expected to begin in the first half of 2025.
According to Stifel analysts led by David Grossman, IBM's last mainframe cycle commenced with the z16 in Q2 2022. Mainframe cycles typically last 10-12 quarters and have historically increased the infrastructure segment's revenue by around $1.5 billion in the first 12 months. Over the past year, IBM's stock has surged by 67%, continuously setting new highs in the past month.
