24/7 Wall St.

International Business Machines Corp. (NYSE: IBM) recently reported its fourth-quarter financial results, which helped to push the stock higher in Friday’s session. Despite these strong results, there has been some dissent among analysts. The main critiques are coming from Credit Suisse and Jefferies.

24/7 Wall St. has included some highlights from the earnings report, as well as what these analysts are saying.

Big Blue said that it had $5.01 in earnings per share (EPS) and $21.8 billion in revenue, versus consensus estimates from Thomson Reuters that called for $4.88 in EPS and revenue of $21.64 billion. The same period of last year had EPS of $4.84 and $22.06 billion in revenue.

In the fourth quarter, the company generated net cash from operating activities of $3.2 billion, or $5.6 billion excluding Global Financing receivables. IBM’s free cash flow was $4.7 billion. It returned $1.3 billion in dividends and $0.9 billion of gross share repurchases to shareholders. At the end of December 2016, IBM had $5.1 billion remaining in the current share repurchase authorization.

Credit Suisse’s Kulbinder Garcha says that concerns remain around Big Blue. He has reiterated his Underperform rating with a $110 price target. The also firm adjusted its 2017 EPS estimate to $13.42 from $12.64, and set its 2018 EPS estimate to $12.72, with a vast majority of the positive revision owing to a lower tax rate. Credit Suisse further modeled 2017 and 2018 revenues at $78.0 billion and $76.6 billion, respectively, implying growth of −2.5% and −1.7%.

While optimists may note EPS guidance growing year over year, Credit Suisse believes it is materially being helped by a fundamentally lower tax rate. The firm believes that the secular and structural challenges facing IBM remain, and specifically it sees limited improvement in Services and Software margins.

Credit Suisse commented in its report:

IBM management did seem to suggest that revenues were close to stabilizing and margins would expand at a PTI level (although we believe this is being helped by lower workforce rebalancing charges). We have some doubts about this given that we estimate CC, organic revenue last year still declined 3%, PTI dropped 15% and margins fell by 280 basis points to 19.4% (on pre restructuring basis). In our view that IBM is still over-earning and many of its business areas (e.g. strategic initiatives and cloud) are margin dilutive.

Jefferies is almost as negative as Credit Suisse. James Kisner of Jefferies maintained an Underperform rating and a $125 price target. He detailed in his report:

Q4 EPS was a bit better than Consensus, but upon closer inspection we view the results as an operational miss given a lower-than-expected tax rate and large IP income (there was “hair” on the quarter). Commentary around Q1 and 2017 EPS guidance similarly gave us concerns about earnings quality. We are keeping our Underperform rating.

Shares of IBM closed most recently at $170.55, with a consensus analyst price target of just $158.90 and a 52-week trading range of $116.90 to $170.62.