The Most Negative IBM Analyst Case Remains Firmly Against It

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International Business Machines Corp. (NYSE: IBM) still offers a serious conundrum for investors. It looks dirt cheap on the surface, one of the cheapest DJIA stocks, but the problem is that the financial engineering is masking a truly dismal scenario for IBM under CEO Ginny Rometty’s plan.

Now a new report from Credit Suisse’s Kulbinder Garcha maintains a strong Underperform rating in IBM shares. The analyst report is on the heels of IBM announcing the z13 mainframe, which is targeting mobility, security and analytics.

Why this report matters is that Garcha is the most bearish of all Wall Street analysts, in this case. His $125 price target is the lowest and is more than $40 lower than the consensus analyst price target for IBM of $166.10.

IBM may have been featured in our world’s most innovative companies list due to its patent awards, but the 24/7 Wall St. 2015 bullish and bearish IBM review highlights many of the valuation trap risks as well. Also, we rated IBM as currently the worst run of the big cap stocks.

An updated pre-earnings report is looking at a continuation of subdued services and software growth. Garcha expects that IBM will report fourth-quarter numbers of $24.6 billion in revenues and $5.37 in earnings per share. Consensus estimates are $24.9 billion in revenue and $5.45 in earnings per share. For the full year, Garcha expects IBM to report sales of $94 billion on earnings per share of $16.16.

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Garcha’s report said:

We see in aggregate of about 2% currency headwind building for IBM on a go forward basis. Beyond this, we continue to believe that IBM faces a painful multi-year process which leads to a prolonged period of underperformance and we reiterate our Underperform rating and price target of $125. Fiscal 2015 and 2016 Street estimates may be 10% and 25% too high.

Garcha currently projects fiscal 2015 earnings of $15.24 per share and in 2016 at $14.42 per share. These are 9% and 20% below the consensus and estimates of $16.69 in 2015 and $17.99 per share in 2016. As a reminder, Rometty finally confessed in October that the goal of $20 in earnings per share by the end of 2015 was going to be unattainable — even with the endless stock buybacks and cost-cutting goals.