$34B well spent!
IBM stock was falling Monday morning after an analyst at UBS said he sees less upside for the stock.
The back story. IBM stock (ticker: IBM) has gained 17% in 2019, and 2.7% in the trailing one-year period, lagging behind the S&P 500 index in both periods, but beating the Dow Jones Industrial Average in 2019.
Its shares fell last week even after the company beat earnings expectations and maintained its full-year outlook. Revenue fell short of consensus.
What's new. UBS analyst Munjal Shah thinks pressure facing IBM’s legacy businesses in 2020 will somewhat offset growth from its latest mainframe cycle and its acquisition of Red Hat.
Shah wrote in a note to clients Monday that trends in IBM’s global technology services, which accounts for 35% of the company’s revenue, don’t look encouraging. He cited a backlog down $10 billion from 2016 and signings that are down 9% in the first three quarters of 2019. He thinks those two metrics need to stabilize if investor confidence is to be restored.
An IBM representative didn’t immediately return a request for comment.
IBM stock finished down 1.1% to $132.58 on Monday, while the Dow Jones Industrial Average advanced 0.2% and the S&P 500 rose 0.7%.
Looking ahead. Shah lowered his rating to Neutral from Buy and slashed his price target to $140 from $170. He wrote that it would be hard for the company to increase its revenue by the mid-single digits on a sustainable basis because of pressure facing legacy businesses.
“New mainframe and Red Hat acquisition would drive revenue growth next year,” Shah wrote. “However, beyond 2020, Red Hat contribution to growth lessens and mainframe compares are difficult.”