Why Credit Suisse Is Warning Against the Massive IBM Rally

Technology

Published: April 13, 2016 11:20 am

Last Updated: January 13, 2020 10:49 am

International Business Machines Corp. (NYSE: IBM) has enjoyed a huge recovery in 2016. As of the close of April 12, IBM’s stock was actually the fifth best performing Dow Jones Industrial Average stock of 2016, with a total return of over 9.8%. IBM has been plagued as a business, representing a no-growth tech zombie without direction and with a management strategy of engineered earnings that had no real underlying strength.

But what if all the negative hype just went too far? 24/7 Wall St. recently saw other analyst calls signaling that perhaps its strong performance in 2016 might be indicating that the endless negativity may have been overdone. Credit Suisse has been the most bearish of all major brokerage firms in its analyst ratings.

Despite another negative analyst becoming less negative, Credit Suisse’s Kulbinder Garcha is telling investors that they better not fall into believing that IBM’s recovery is sustainable. Garcha has an Underperform rating and he maintained his very negative $110 price target on shares of Big Blue. Investors should be aware that Garcha’s target had been a tie for the street-low, versus all other analyst price targets.

Garcha sees IBM’s revenues not likely stabilizing until 2018. He also thinks that much of IBM’s business is being impacted by the cloud operations of competitors.

Perhaps most important here is that the investing community keeps talking about how cheap IBM is in its valuations. Garcha debunks the myth that IBM is a value stock.