On Thursday, Evercore ISI maintained a positive stance on IBM (NYSE:IBM) shares, with analyst Amit Daryanani reiterating an Outperform rating and a $275.00 price target. According to InvestingPro data, IBM has demonstrated remarkable dividend reliability, maintaining payments for 55 consecutive years and raising them for 29 straight years. The stock currently trades at a premium to its Fair Value, with analyst targets ranging from $160 to $320. Daryanani’s assessment followed Accenture’s (NYSE:ACN) report of second-quarter earnings that slightly surpassed expectations, with revenues of $16.7 billion and earnings per share (EPS) of $2.82, compared to the consensus of $16.6 billion and $2.81, respectively. Accenture’s revenue showed a moderate acceleration to approximately 8.5% year-over-year growth at constant currency, which is estimated to be around 4-5% organic growth. The company’s bookings stood at $20.9 billion, remaining flat year-over-year at constant currency, including artificial intelligence bookings of $1.4 billion. For comparison, IBM’s revenue growth stands at 1.44% over the last twelve months, with the company generating $62.75 billion in revenue. Discover more comprehensive financial metrics and insights with InvestingPro, which offers detailed analysis of over 1,400 US stocks.
Despite these figures, Accenture highlighted two significant headwinds. First, federal government spending, which constitutes about 8% of Accenture’s total for fiscal year 2024, has slowed due to efficiency efforts affecting government procurement actions. This impact on the top line was further exacerbated by the General Services Administration’s (GSA) directive for federal agencies to reassess contracts with the top 10 highest-paid consulting firms, terminating those not considered mission-critical. The second headwind is the increased macroeconomic uncertainty, which Accenture noted has become more pronounced compared to the previous quarter.
In light of these challenges, Accenture provided a third-quarter revenue guidance of $16.9 to $17.5 billion, which aligns with consensus expectations at the midpoint and suggests a growth of 3-7% at constant currency. They also revised their fiscal year 2025 revenue growth outlook to 5-7% at constant currency, up from the previous 4-7%.
Daryanani expressed concern that the issues highlighted by Accenture, specifically the federal government spending headwinds and the heightened macroeconomic uncertainty, could negatively influence IBM’s Consulting segment. This could potentially hinder a second-half recovery for that part of IBM’s business. Evercore ISI estimates that IBM has a public sector exposure of approximately 10-15% at the consolidated level. Despite these challenges, IBM maintains strong fundamentals with a gross profit margin of 56.65% and an overall "GOOD" Financial Health Score according to InvestingPro analysis, which offers detailed insights through its comprehensive Pro Research Reports.
In other recent news, IBM has announced changes to its revenue reporting within its Software (ETR:SOWGn) and Consulting segments, effective from the first quarter of 2025. This update, filed with the Securities and Exchange Commission, aims to provide a clearer picture of IBM’s operations without impacting its Consolidated Financial Statements. Additionally, IBM has recast historical financials for 2024 and 2023 to align with the new reporting structure. In a separate development, IBM and NVIDIA (NASDAQ:NVDA) have entered into new collaborations to enhance enterprise AI capabilities, focusing on AI workloads and applications. This includes the introduction of a content-aware storage feature and expanded IBM Cloud offerings with NVIDIA technologies. Erste Group has upgraded IBM’s stock rating from Hold to Buy, citing stronger sales growth expectations and the robust performance of Red Hat software. The analysts highlighted IBM’s projected free cash flow increase and its strategic focus on high-growth areas like AI and hybrid cloud computing. Furthermore, IBM, in partnership with the Basque Government, plans to install Europe’s first IBM Quantum System Two in Spain by the end of 2025, aiming to advance quantum computing capabilities in the region.
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