Are the Bullish IBM Investors Still Getting Enough Upside Versus the Risk?

How much upside from a stock would you demand for a new Buy or Outperform rating? That is a serious question that investors have to ask themselves now as the post-election rally has continued on and on into 2017. In the case of International Business Machines Corp. (NYSE: IBM), investors need to ask themselves this even more.

IBM has been given mostly positive views after its 2017 investor briefing this week. Some firms did not raise their price targets, but we have yet to see any analyst calls lowering price targets. The real issue is whether the run from its bottom in 2016 has been ahead of itself or if there are good things happening that are not priced into IBM in this pro-growth environment.

24/7 Wall St. has tracked several research notes. Some are more bullish than others, yet there are two rather cautious analysts who have so far refused to loosen up their negative stranglehold in IBM’s stock valuation.

JMP Securities reiterated its Market Outperform rating on IBM, and it raised the price target to $188 from $175, after attending the 2017 investor briefing. The firm said:

Like last year, the overarching theme of the investor briefing was IBM’s ability to build “a unique and enduring” cognitive and cloud platform. To this end, once again the focus of the investor briefing was Watson’s differentiation and the value of the IBM platform, including its industry focus (especially in healthcare and financial services), its AI capabilities (which it believes makes it unique against the competition), its ecosystem (for example its recent partnership announcement with, among other differentiators.

One thing that JMP’s message really conveyed here is that CEO Ginni Rometty was absolutely confident that IBM will return to revenue growth. Her view is that IBM’s strategic imperatives will continue to grow in the double digits. JMP feels that there is visibility into the crossover point where the faster-growing parts of the business will become bigger than the declining parts of its business. JMP maintained its 2017 non-GAAP EPS estimate of $13.85 per share and 2018 estimate of $14.06 (versus $13.72 and $14.07 consensus, respectively). The $188 target now implies a 2018 price-to-earnings (P/E) multiple of 13 rather than the prior 12.

A much more bullish view on IBM came from Drexel Hamilton. The firm sees IBM as an attractive turnaround story with improved fundamental trends. It reiterated its Buy rating and raised its target to $215 from $186 in that call. This upgrade is based on a belief that IBM has even more fruits of its labor coming as the strategic imperatives are getting better appreciation by investors.

Merrill Lynch reiterated its Buy rating on IBM and the firm has a $200 price objective. Its report said: