IBM (IBM) has gained about 2.35% so far this year, as of this writing, Wednesday afternoon, January 14. Meanwhile, SPY is up 1.74% in the same period. Not a bad start to the year for IBM.
The company has announced a preliminary release date for its fourth quarter 2025 earnings report of January 28. After outperforming the S&P 500 by gaining about 39% last year compared to SPY’s 19% gain, investors must wonder if the company will do it again and what we can expect from IBM in 2026.
Bank of America analyst Wamsi Mohan and his team updated their views on IBM stock ahead of the company’s earnings.
Bank of America reiterated a buy rating on IBM shares, raising the price target.Image source: Shutterstock
Analysts said they don’t expect IBM stock to see as strong growth in fiscal 2026 as it did in 2025 as it will face several headwinds. They estimate a softer pre-tax income (PTI) margin in the fourth quarter due to workforce rebalancing initiatives, leading to FY2025 PTI margin expansion below guidance of over 100 basis points.
The team believes IBM will incur a workforce rebalancing expense of $400 million in the fourth quarter, resulting in a year-over-year PTI margin expansion of 70 basis points in fiscal 2025.
Mohan stated that for free cash flow (FCF), it estimates $14.0 billion for fiscal 2025 and expects guidance of approximately $15 billion in fiscal 2026, maintaining a net income/FCF ratio of 130%.
More tech stocks:
The analysts changed their non-GAAP EPS and revenue estimates for fiscal 2025, raising revenue from $66.9 billion to $67.1 billion and lowering the non-GAAP EPS estimate from $11.38 to $11.32.
In a research note shared with me, Mohan reiterated a buy rating on IBM shares and raised the price target from $315 to $335, based on 23 multiples of his estimate of the enterprise value/FCF ratio for calendar year 2027.
He wrote: “Our target multiple for IBM exceeds the upper end of the historical range by 8x to 22x, with a median of 13x. We believe a multiple at the upper end/exceeding the historical range is justified given the company’s improving growth and FCF track record with Red Hat.”
The last time Mohan raised IBM’s stock price was after its third-quarter earnings report. As a reminder, read my article “Bank of America Revamps IBM Stock Price After Earnings.”
-
Not executing the company’s growth roadmap.
-
Inability to achieve expected cost savings from restructuring
-
Technological/competitor risk in hardware, software and services
-
Unforeseen currency impacts on revenue and profits
-
Integration of acquisitions, given the acquisitive nature of IBM
-
Increased concern over economic uncertainty and tightening corporate IT budgets