The Rising Influence of Rising Affluence

[DewDiligence]

“Let’s Build a Smarter Planet”

http://www.bloomberg.com/news/2011-01-19/ibm-shares-rise-to-record-as-analysts-say-stock-may-hit-175-within-a-year.html

›IBM Shares Set Third Straight Record as Analysts Say Stock May Reach $175

By Katie Hoffmann
Jan 19, 2011 4:18 PM ET

International Business Machines Corp. shares climbed to their third record in as many days as analysts raised their price estimates for the stock on increasing spending by corporations.

The shares rose 3.4 percent today after IBM posted sales and profit that topped estimates after-market yesterday. More than half of IBM analysts tracked by Bloomberg increased their price targets, including six who predict the stock will reach at least $175.

IBM reported sales growth in every division, as well as a bump in services contracts -- the first in a year -- and said it is on track to hit a goal of almost doubling operating earnings to $20 or more by 2015. [“Operating earnings” means non-GAAP; until recently, IBM’s earnings guidance has been in terms of GAAP, so the change of emphasis warrants close scrutiny.] The company has boosted per-share profit for more than 30 straight quarters, and investors are starting to take notice, said Rob Cihra, an analyst at Caris & Co.

“IBM steadily was able to even grow during the downturn, and IBM is slowly starting to get credit for that,” said New York-based Cihra, who rates IBM “above average” and has a 12- month price target of $175.

The world’s largest computer-services provider, which has its 100th anniversary this year, is also benefiting as corporations resume spending after the recession, said Chris Whitmore, a Deutsche Bank AG analyst, who predicts companies’ information-technology budgets will grow 6 percent this year. He boosted his price target for IBM by $20 to $175 today.

Fourth-quarter sales climbed 6.6 percent to $29 billion, with hardware revenue rising more than 20 percent as a mainframe computer introduced in July helped boost sales in that product category. Sales from the software division, accounting more than 40 percent of total profit, climbed 7 percent to $7 billion.

Analytics, Cloud Computing

IBM, based in Armonk, New York, forecast that operating earnings, which exclude acquisition and some retirement costs, will increase 11 percent to $13 a share this year.

The shares rose $5.04 to $155.69 at 4 p.m. in New York Stock Exchange composite trading for the biggest jump since May.

Since Sam Palmisano became chief executive officer in March 2002, he’s divested hardware units, including the personal-computer business sold to China’s Lenovo Group Ltd., and invested in more-profitable software and services.

At an investor briefing in May, he laid out how IBM plans to reach its 2015 earnings target, as well as boost its annual revenue of almost $100 billion by another $20 billion.

That helped the company break an 11-year-old closing price record in October, hitting $138.72. Since then the shares have climbed 12 percent, outpacing the Standard & Poor’s 500 Index.

The company is investing in analytics software and so-called cloud computing, which the company forecasts will become $16 billion and $3 billion businesses respectively by 2015. Smarter Planet, Palmisano’s initiative to digitally monitor anything from roads to hospitals to make them more efficient, should grow to a $10 billion business, the company projects.

Palmisano also plans to spend about $20 billion on acquisitions through 2015. He announced 15 deals last year, including the purchase of storage-computer maker Netezza Corp. for $1.7 billion.‹