Bank of America revamps IBM stock price after earnings

Core Insights - IBM reported strong Q3 earnings, with revenue growth accelerating to 7%, marking the highest growth in several years, and exceeding expectations in revenue, profit, and free cash flow [1][2] Financial Performance - Revenue for Q3 was $16.3 billion, up 9% year-over-year and 7% at constant currency [7] - Gross profit margin improved to 57.3%, an increase of 1.1 percentage points [7] - Net income reached $1.7 billion, a significant recovery from a net loss of $330 million in Q3 2024 [7] - Free cash flow (FCF) was approximately $14 billion [7] Business Segments - The cloud business, primarily from Red Hat, experienced a growth of 14%, while Hybrid Cloud and transaction processing saw year-over-year growth of 12% and a decline of 3%, respectively [3][5] - Strong contributions were noted from automation, which grew 22% year-over-year, and infrastructure, which grew 15% year-over-year [5] Analyst Outlook - Bank of America raised its price target for IBM stock from $310 to $315, maintaining a buy rating based on the enterprise value to FCF ratio for calendar year 2026 [4][8] - Analysts revised fiscal year 2025 guidance for Red Hat to the low end of mid-teens year-over-year growth [5] - The estimated FCF for fiscal year 2025 was set at $14 billion, aligning with IBM's guidance, while revenue forecasts were raised from $66.6 billion to $67 billion, and EPS from $11.12 to $11.39 [6]