BofA lifts IBM target, sees strong cash flow despite near-term margin pressure

Core Viewpoint - International Business Machines Corporation (IBM) is recognized as a trending AI stock, with analysts projecting a robust free cash flow (FCF) outlook and a higher-margin software mix, despite facing near-term headwinds [1]. Group 1: Financial Projections - BofA Securities raised the price target for IBM stock to $335.00 from $315.00 while maintaining a Buy rating, indicating confidence in the company's financial outlook [1]. - Analysts expect a modest year for IBM in 2026, with projected revenue growth of about 5%, driven by strong software growth and modest infrastructure growth [3][4]. - The firm anticipates a workforce rebalancing expense of $400 million in Q4, which is expected to limit full-year 2025 profit before tax (PTI) margin expansion to approximately 70 basis points, below management's guidance of 100 basis points [3]. Group 2: Revenue and Growth Expectations - For fiscal year 2026, IBM is likely to guide software constant currency revenue growth of around 10%, low single-digit percentage growth in consulting, and flat growth in infrastructure, totaling 5% constant currency growth for the company [4]. - The Confluent deal is projected to contribute modestly to software revenue in 2026, although it may be slightly dilutive to earnings [3][4]. - The company is modeling $14.0 billion in FCF for fiscal year 2025 and expects to guide approximately $15 billion in fiscal year 2026, maintaining a 130% net income to FCF ratio [4].