IBM Beats on the Top Line Though Currency Headwinds Substantial; Shares Fairly Valued

IBM’s third quarter involved a nice beat on the top line despite significant currency headwinds, while EPS came in slightly under our non-GAAP expectations. As a result of rosier demand, the revenue outlook for the year increased, and is now expected by management to be above its former mid-single-digit growth forecast in constant currency. Upon results, IBM shares have risen by 3%, which now has the stock trading right at our fair value estimate. We maintain our fair value estimate of $126 per share for the IT services provider. Altogether, we reiterate our narrow moat and negative moat trend rating for Big Blue—as we think that the hybrid cloud strategy the company is banking on will not come to fruition in full. Instead, we believe the majority of workloads will eventually move to the cloud.