By Senad Karaahmetovic
Morgan Stanley analysts downgraded shares of IBM (NYSE:IBM) to Equal Weight from Overweight with a $148 per share price target (down from the prior $152.00).
The analysts made a move after a “significant” outperformance over the course of the last 12 months. IBM stock trades near multi-year highs after recording positive returns in the last 52 weeks.
They also note decelerating revenue growth while seeing the risk of underperformance in a 2H23 early cycle bounce increases.
“Since the beginning of 2022, IBM has been the best performing name in our coverage, outperforming our IT Hardware coverage by 40 points, and the S&P 500 by 25 points. However, as Y/Y comps get more difficult, IBM laps its mainframe and ELA renewal cycles, and macro uncertainty persists, we are increasingly more guarded that IBM can sustain its goal of mid-single digit Y/Y revenue growth (in constant currency) in CY23,” the analysts said in a client note.
On the other hand, the analysts upgraded Seagate (NASDAQ:STX) to Overweight from Equal Weight with a $69 per share price target. They also introduced Apple (NASDAQ:AAPL) as a Top Pick in the broker’s research coverage of the U.S. IT Hardware sector.
“While STX has been challenged by inventory corrections at customers, COVID lockdowns in China, and weakening consumer demand, we believe now is the time to get more constructive, as we believe we’re nearing an HDD industry bottom and soon move to the early cycle period.”
BofA analysts also reflected on the recent outperformance and used the opportunity to increase the price target to $152 per share from the prior $145. Unlike Morgan Stanley analysts, they believe IBM stock can continue to benefit from its defensive positioning.
“We expect shares of IBM to outperform in a weaker macro backdrop on an improving fundamental story. Reit. Buy on continued turnaround at IBM (rev growth and FCF improvement), defensive portfolio (which should help the company outperform in a recession), and attractive dividend yield.”
IBM stock is down nearly 1% after Morgan Stanley’s downgrade.