International Business Machines released its first quarter earnings report earlier this week, and its stock is still moving higher today as analysts praise the results. Drexel Hamilton analyst Brian White raised his price target for IBM stock from $160 to $166 per share following Monday’s print.

IBM

IBM stock to benefit from transition progress

White opined in his April 19 report that IBM management is making progress on the transition. The company beat revenue estimates (coming in at $18.7 billion), which he said is rare, but he notes that reporting new business segments creates new challenges for investors and analysts when analyzing the company’s results. He added that this also creates a one-time tax benefit that hides the company’s true performance.

Overall though, the analyst believes IBM is making progress in its transition. He also believes the operating profit cycle hit bottom in the first quarter and that IBM stock has a dividend yield of 3.4%. The company’s pro forma earnings were $2.35 per share, which beat the consensus of $2.10.

IBM’s new businesses return solid results

White said IBM recorded a 17% year over year increase in “strategic imperatives” to $7 billion. Cloud revenue surged 36% to $2.6 billion, while analytics grew 9% to $4.2 billion. Cognitive Solutions revenues remained flat year over year at $4 billion, while revenue from the Global Business Services segment declined 2% to $4.1 billion. Revenue from the Technology, Services & Cloud Platforms business rise 2% to reach $8.4 billion, while Systems revenue plunged 21% to $1.7 billion.

The Drexel Hamilton analyst noted that Americas sales declined 4%, returning the weakest performance in constant currency. Europe, the Middle East and Asia saw a 1% decline, while the Asia Pacific region returned a 1% increase

Management maintained their previous guidance for earnings of at least $13.50 per share but expect free cash flow to be toward the high end of their previously provided guide of $11 billion to $12 billion. However, White noted that the implied second quarter earnings guide is lower than consensus estimates, so even though he raised his price target, he cut his second quarter earnings estimate from $3.33 to $2.91 per share. He also raised his revenue estimate for the quarter from $18.7 billion to $19.1 billion.

IBM stock climbed by as much as 1.65% to $148.52 in morning trading today after finishing higher on Wednesday.

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