IBM (IBM), he said, is “well positioned for better growth, profitability, and sustainable
shareholder return with elevated enterprise transformation demand anticipated
ahead.” Essex said the company’s recent spinoff of its managed infrastructure
business Kyndryl (KD) “will support better fundamentals as the spin should remove
headwinds for growth, profitability, and cash flow,” but added that the move does
involve complexity and risk.
https://www.barrons.com/articles/goldman-sachs-it-services-stocks-cognizant-ibm-accenture-51641831832
By: Eric J. Savitz
Jan. 10, 2022 11:26 am ET
Goldman Sachs analyst Brian Essex launched coverage of a half-dozen IT services companies, setting Neutral ratings on stock in both IBM and Accenture .
He also gave Buy ratings to both Cognizant (ticker: CTSH) and TaskUs (TASK), a Neutral rating to Toronto-listed Softchoice (SFTC.TO), and a Sell rating to CGI Inc . (GIB).
“We remain in the early stages of a substantial shift toward digital enterprise infrastructure adoption,” Essex said in a lengthy research note on the group published Monday. “We are seeing an acceleration of users, devices and data across enterprise networks while disruptive new entrants continue to emerge in markets across all verticals with digitally native technology.”
The IT services companies are well positioned to benefit from the shift, Essex believes.
He is upbeat about Accenture’s (ACN) fundamental outlook, he said, saying it is among the best positioned companies in the group. Yet he also noted that the stock trades at a historically high premium, a sign that it already reflects most of the upside. Essex set a $446 target on the stock, for a premium of about 12% above recent levels.
IBM (IBM), he said, is “well positioned for better growth, profitability, and sustainable shareholder return with elevated enterprise transformation demand anticipated ahead.” Essex said the company’s recent spinoff of its managed infrastructure business Kyndryl (KD) “will support better fundamentals as the spin should remove headwinds for growth, profitability, and cash flow,” but added that the move does involve complexity and risk.
He set a target price of $140 for IBM, just slightly above the recent level.
He sees more upside for Cognizant, setting a price target of $104, implying about 16% potential appreciation in the stock. “After several years of management change, refocus, and investment, we have begun to see signs that fundamentals are improving and view the company as well positioned for better revenue growth and margin expansion ahead, driving better valuation in the process,” he wrote.
In late morning, Cognizant stock was down 2.4%, while Accenture fell 2%, and IBM was 0.7% lower. The Nasdaq Composite index lost 2.3%.