Proactive Investors - IBM’s first-quarter results were “better than feared” after higher margins counteracted the computing firm’s revenue miss, said Wedbush.
Analysts were buoyed by IBM’s quarterly results, which came in ahead of first-quarter 2023 adjusted earnings of $1.36 per share, surpassing the consensus estimate of $1.26 per share.
But its revenue for the period of $14.25 billion was impacted by falling corporate spending on IT services and a strong dollar, missing Wall Street expectations of $14.35 billion.
That said, IBM’s gross margins for the software, consulting and infrastructure divisions all improved year over year.
The encouraging results and guidance came against the backdrop of moderating enterprise IT spending growth, Wedbush noted.
The firm also highlighted IBM’s management pointing to recent project deferrals in its US-based consulting segment, and margin improvements offsetting revenue miss in services.
Wedbush did note that this year’s cash EPS and free cash flow guidance “remain heavily backend loaded” with around two-thirds generated in the second half of 2023.
The guidance factors in accelerating revenue growth from subsidiary Red Hat (NYSE:RHT), moderating growth in consulting from the original high single-digit levels to 6 to 8%, and flat growth in the Infrastructure segment.
Analysts highlighted higher year-over-year bookings at $5.2 billion, up 7%.
Meanwhile, IBM’s ongoing restructuring plan is expected to deliver $2 billion in cost savings by 2024.
There was one area that Wedbush analysts cheered.
“So far, minimal impact from the ‘Mini’ banking crisis, triggered early March, as we peg BFSI (Banking, Financial Services, and Insurance) at roughly 30% of IBM (NYSE:IBM)'s revenues, a segment with a heavy mainframe, core-banking, recurring revenue component (software, hardware and storage),” analysts wrote.
Wedbush is keeping its Neutral rating and $140 price target on IBM’s shares, which traded around $127 on Thursday.