Analyst Note| Julie Bhusal Sharma |
IBM’s first quarter results came in above our expectations as its consulting business started to pick up--and its z15 mainframes unexpectedly took a turn for the better--breaking from expected market cyclicality. Market volatility and security concerns increased mainframe capacity needs, leading to nearly 50% year-over-year growth in the seventh quarter since the z15 model’s launch. Despite the impressive breach of typical trends, IBM doesn’t expect such anomalous activity in the smaller systems segment to continue--as it reiterates guidance for 2021 which includes revenue growth. We think top-line growth is feasible due to the easy compare from a hard-hit 2020 as well as our belief that global business services, which is now growing, is a harbinger for recovery throughout the rest of the business. All in all, we’re maintaining our fair value estimate of $125 per share for the narrow-moat IT services provider, which leaves the company fairly valued.