On Tuesday, Bernstein SocGen Group maintained a positive outlook on Apple Inc. (NASDAQ:AAPL), reasserting an Outperform rating with a $240.00 price target. The analysis conducted by the firm highlighted potential impacts of tariffs on the IT hardware sector. According to the analyst, a hypothetical 20% price increase by IT hardware companies to counter tariffs could significantly affect net profits, especially for those with low gross margins.
The analyst pointed out that Dell Technologies Inc. (NYSE:DELL) could be the most affected within Bernstein's coverage, with potential earnings per share (EPS) reductions of up to approximately 90%. This vulnerability is attributed to Dell's low product gross margins. In contrast, International Business Machines Corporation (NYSE:IBM) is expected to face the least impact, with an estimated 2% decrease in EPS, due to the nature of its revenue streams which are largely from software and services, rather than imported products.
Apple, despite common perceptions, is deemed less susceptible to tariff-related profit hits because of its high product gross margins. The analysis estimates that Apple could see around a 7% reduction in EPS if such tariff-induced price adjustments were to occur. The firm emphasized that the actual impact on profitability would be greatly influenced by the companies' price changes and the resulting demand elasticity, which is challenging to predict.
In other recent news, International Business Machines Corporation ( IBM ) announced a regular quarterly cash dividend of $1.67 per common share, continuing its tradition of returning value to shareholders. This news follows IBM's Q3 2024 financial report, which revealed a total revenue of $15 billion, with software revenue growing by 10% and Red Hat's performance increasing by 14%.
Despite flat consulting revenue, the company's hybrid cloud and AI initiatives, including a generative AI book of business worth over $3 billion, have positioned the company for an optimistic outlook heading into 2025. IBM's recent earnings call also revealed an optimistic growth trajectory, with the company expecting low double-digit revenue growth in software for Q4 and over $12 billion in free cash flow for the year.
In addition, BMO (TSX:BMO) Capital Markets has updated their outlook on IBM, raising the price target to $260 from the previous $235 while maintaining a Market Perform rating. The firm highlighted the ongoing solid growth in software, which is likely to continue into fiscal year 2025 (FY25), partly due to the potential integration of HashiCorp (NASDAQ:HCP), a software company specializing in cloud infrastructure automation.
InvestingPro Insights
To complement the analysis on IBM's resilience to potential tariff impacts, recent data from InvestingPro offers additional context on the company's financial health and market position. IBM's market capitalization stands at $191.63 billion, reflecting its significant presence in the IT services industry. The company's revenue for the last twelve months as of Q3 2024 was $62.58 billion, with a modest growth of 2.3% over the same period.
InvestingPro Tips highlight IBM's strong dividend history, having raised its dividend for 29 consecutive years and maintained payments for 54 years. This consistent dividend policy underscores the company's financial stability, which aligns with the analyst's view of IBM's lower vulnerability to tariff-related profit impacts.
Furthermore, IBM's gross profit margin of 56.53% for the last twelve months ending Q3 2024 supports the notion that the company's focus on software and services provides a buffer against potential tariff-induced price pressures on hardware. This robust margin, coupled with an operating income of $7.245 billion over the same period, suggests that IBM is well-positioned to navigate potential market challenges.
For investors seeking more comprehensive insights, InvestingPro offers additional tips and data points that could further illuminate IBM's market position and financial outlook. Currently, there are 6 more InvestingPro Tips available for IBM, providing a deeper analysis of the company's performance and potential.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.