Can IBM Stock Rally 27% to $165 Per Share?

IBM stock - Can IBM Stock Rally 27% to $165 Per Share?

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Shares of International Business Machines (NYSE:IBM) have been in focus lately, as investors wonder whether this value stock can continue to perform. Shares of IBM stock are up roughly 7% from the March low. And at one point, the stock was higher by about 9% from the lows, as value investors continue to find safety in old-tech.

Moreover, two analysts this year have now called for IBM stock to reach $165 per share. Those calls come from Jefferies and Credit Suisse, while Bank of America analysts have a $162 price target. In turn, a rally to $165 would represent a gain of 27% from current levels. Additionally, all three calls came after the company’s fourth-quarter earnings beat on Jan. 24, where IBM topped earnings and revenue estimates.

However, some investors will bemoan IBM’s mild 7% to 9% bounce. That’s particularly true when compared to some of the more well-known growth stocks. For instance, Shopify (NYSE:SHOP) is up 42% from its March low, while Salesforce (NYSE:CRM) has climbed about 15%.

That said, note how far these stocks also came in from the highs. From the year-to-date (YTD) high, IBM stock fell about 16.5%. Conversely, Salesforce and Shopify fell 28% and 63%, respectively. For what it’s worth, IBM’s YTD performance — down just 2.9% — is far better than the 7.4% decline for the Nasdaq Composite so far this year, while the latter fell almost 21% at one point from the 2022 high.

Comparisons aside, IBM stock also commands a low valuation and high dividend yield. In fact, IBM stock currently yields just over 5%, and that helps that the stock trades at just 13 times this year’s earnings estimates. The hope is that the company can continue to expand its margins amid mild revenue growth.

For instance, estimates call for just 6% revenue growth this year to $60.72 billion. However, earnings are forecast to climb 24% this year. While those estimates do taper down to just 7% growth in 2023, there are not many stocks out there — particularly in tech — that trade at 13 times earnings, yield 5% and have 20%-plus earnings growth.

Helping drive that growth are platforms like Red Hat, which IBM acquired in 2019 for $34 billion, and deals such as the one IBM inked last week. The company signed a three-year deal with HSBC Bank in an effort to explore the “applications for quantum computing in financial services.”

All in all, IBM not only sidestepped the decimation in growth stocks, but it may even find some companies worth acquiring in the onslaught. Regardless, IBM stock may be one worth keeping an eye on, particularly given this year’s growth estimates.

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

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