Reporting mixed Q3 results, International Business Machines Corp. (IBM, Financial) showed heartening growth in its Software division while seeing reductions in other segments. Moreover, though the company's gross margins exceeded projections, analysts cautioned.
Lead by Erik Woodring, Morgan Stanley (MS, Financial) analysts observed that a 1% miss in Consulting and a 6% shortfall in Infrastructure caused IBM's Q3 income of $15 billion to fall 1% below their expectations. But thanks to a positive turn in software, gross margins exceeded the projected 56.4%, coming in at 57.5%. "Generally, we are less concerned with the 2H24 Infrastructure trends relative to the Consulting challenges given Consulting needs to accelerate in 2025," Woodring said.
The company kept its "Equal-Weight" rating on IBM but dropped the price target to $208 from $217. Woodring underlined the requirement of "cleaner" results to maintain current stock momentum as shares on October 14 reached an all-time high of $235.26 and stayed up 42% for the year. Evercore ISI, on the other hand, reinforced its $240 target and "Outperform" rating. With Consulting most likely reflecting Q3 performance, the company anticipates IBM's Software growth to reach low double-digits in Q4.
