Shares of International Business Machines Corp. (IBM) saw a notable upswing on Wednesday following an optimistic assessment from RBC Capital analyst Matthew Swanson, who has set a Wall Street-high price target indicating the potential for the stock to reach its highest point in nine years.
Swanson expressed confidence in IBM's competitive positioning and its distinctive role within the tech ecosystem, emphasizing its ability to facilitate efficient digital transformation through consulting and software solutions. In his note to clients, he initiated coverage of the diversified information-technology giant, commonly known as Big Blue, with an "outperform" rating. Swanson's price target for IBM (IBM, -1.23%) is $188, a level that now stands as the highest among the 18 Wall Street analysts surveyed by FactSet. This target significantly surpasses the $175 target set by Ben Reitzes of Melius Research.
The stock has not reached the $188 mark since April 15, 2014, when it closed at $188.19. Swanson's new target implies a substantial 25.5% potential upside from Wednesday's closing price.
IBM's stock exhibited a 2.3% rally on this news, closing at $149.83, marking its highest closing price since December 14, 2022. This rally also propelled the stock into positive territory for the month, with a September gain of 2.0% thus far.
Notably, the stock is on track for its fifth consecutive monthly gain, representing the longest winning streak since the six-month run that concluded in December 2009.
Following IBM's spinoff of Kyndryl Holdings Inc. (KD, -1.35%), completed in November 2021, approximately three-quarters of IBM's revenue is expected to come from software and consulting, with about half of that revenue considered recurring.
However, Swanson noted that investors appear to still perceive IBM primarily as a hardware and services company. He highlighted that IBM's valuation is roughly on par with consulting peers but maintains a "significant discount" compared to software peers. Swanson believes that the company's software business is underappreciated and undervalued, particularly in its role within hybrid environments, artificial intelligence (AI), and spending optimization.
Year-to-date, IBM's stock has gained 6.4%, while the SPDR S&P Software and Services exchange-traded fund (XSW) has surged 18.1%, and the Dow Jones Industrial Average (DJIA) has registered a 3.9% increase.
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