IBM (NYSE: IBM) has massively outperformed the broader market over the past twelve months but a Morgan Stanley analyst warns its as far as the stock goes for now.
IBM stock downgraded to ‘equal weight’
On Wednesday, Erik Woodring downgraded the IT hardware company to “equal weight” and announced a $148 price target that doesn’t represent a meaningful upside on its previous close.
The analyst is dovish primarily on the changing economic cycle. His note reads:
Should our 2023 industry outlook prove correct, and early cycle dynamics emerge in mid-2023, we see risk to outperformance given it’s trading near-record highs and it historically underperforms IT hardware in early cycle environment.
Woodring acknowledged a possibility of a sizable acquisition but said it was unlikely to be of much help for the IBM stock this year.
IBM could struggle with decelerating revenue
The Morgan Stanley analyst is particularly concerned about the revenue growth moving forward. IBM is expecting about a 5.0% growth in its revenue this year on a constant currency basis – a forecast that Woodring says could prove to be a bit too lofty.
As Y/Y comps get more difficult, IBM laps its mainframe and ELA renewal cycles, and macro uncertainty persists, we’re increasingly more guarded that IBM can sustain its goal of mid-single-digit Y/Y revenue growth in CY23.
He expects the multinational’s revenue growth to be capped at 3.5% in 2023 as the likes of its consulting business feels moderation. The tech giant had 6.0% growth in its latest reported quarter.
Peer Seagate Technology (NASDAQ: STX) is currently a better pick for equity investors than the IBM stock, Woodring concluded.
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