If there is one Dow Jones Industrial Average stock outside of oil that seems to not be able to find any love anywhere, it is International Business Machines Corp. (NYSE: IBM). That may be changing, or at least one firm is going against the grain here. Independent research firm Argus has decided that the time to upgrade IBM is now.

Argus raised IBM to Buy from Hold, and it set a $175 price target in the call. Investors should understand that Argus admits that the upgrade is based primarily on valuation, trading at 9.2 times its expected 2015 EPS forecast and at 8.8 times its 2016 forecast. IBM’s five-year average price-to-earnings (P/E) ratio is about 11.6. The shares have been trading at 82% of the market’s P/E multiple over the past five years, but the shares now trade at 61% of the market multiple on projected 2015 and 2016 earnings estimates.

What stood out in the report was not just the $175 official target price. It was that a fair value model could take it back above $200 again.

Argus noted that its upgrade also reflects prospects for easier comparisons and better operating performance in coming quarters. The firm even expects that IBM’s poor earnings quality will improve as it benefits from the disposition of commodity-like assets and due to the company’s development of next-generation strategic imperatives in cloud, big data, software as a service (SaaS), enterprise mobility and security.

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The report said:

IBM has prioritized the development of these strategic businesses, which maintained their solid double-digit growth in the second quarter of 2015. The company is increasingly partnering to accelerate development in areas where it is underrepresented, such as enterprise mobility, or where it needs to build complementary offerings, such as in the cloud. In addition, IBM continues to provide “essential” high-value enterprise IT, including products from its Systems Hardware Group.

While the strategic imperatives strategy is sound, at this stage IBM is still rolling off significant low-margin and slow growth business. This transition will be a negative for revenue in the near term and an upturn is still some time away. However, EPS comparisons could turn positive by the end of this year or early next year, depending on end-market conditions.

IBM shares are also down 10% year to date, versus a 13% decline for the peer group and a 6% decline for the S&P 500. In 2014, IBM fell 15%, while the Argus peer group of eight IT-stocks rose 16%; IBM’s stock fell 2% in 2013 versus the peer group rising a whopping 53%; and IBM shares rose 4.3% in 2012 versus an average 12% decline for the peer group.

The firm has also addressed IBM’s long hard fall in the stock price. It said:

For too long, while investors were calling on IBM to make transformative deals and jettison legacy assets, management remained focused on its “EPS growth at any cost” strategy. Not only was this buyback-driven strategy out of sync with investors, it also cost the company precious time in realigning priorities to better match its transitioning end markets.

We believe that IBM shares will be better positioned for relative outperformance in the coming months and quarters based on the company’s prospects for easier comparisons, a better product mix, and stronger operating fundamentals. Late in 2014, IBM abandoned its 2015 EPS target of $20. Earlier, the company strengthened its cloud strategy with the acquisition of SoftLayer, which positioned it in both cloud enablement and cloud hosting. IBM has since turned its focus to several strategic imperatives, while simultaneously supporting “essential” high-value enterprise IT offerings.

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During the second quarter, strategic imperatives accounted for more than 30% of adjusted revenue. Within these businesses, total cloud revenue was up 50% on a GAAP basis and 70% non-GAAP. Cloud delivered as a service achieved a $4.5 billion annualized revenue run rate, compared to a $2.8 billion run rate a year earlier. Business analytics revenue grew more than 20% on a currency-adjusted basis and over 10% on a GAAP basis.

After reaffirming its 2015 adjusted EPS guidance of $15.50 to $16.25, with a hint that the low end of the range was more likely, Argus thinks that IBM is no longer chasing earnings per share growth for its own sake.

While the Argus price target is actually $175 for IBM, the report said that its discounted free cash flow model would actually render a fair value in the $200s — and that is now also in a rising trend. The firm concludes:

We believe that the multiyear relative underperformance in IBM, capped by non-fundamental weakness during the late-August market meltdown, has provided a favorable entry point.

IBM closed at $140.96 on Tuesday and shares were up 2.3% at $144.24 early Wednesday. IBM has a consensus price target near $160 from the average of all analysts, and its 52-week trading range is $140.62 to $195.00.

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