• IBM could perform better than other hardware companies in the market now that over half of its revenue is recurring, one analyst said.
• Analysts expect IBM's revenue growth to accelerate in 2022.

IBM shares closed up 7.1% on Wednesday after the hardware, software and consulting provider reported stronger-than-expected first-quarter results, inspiring analysts to raise price targets and estimates. The gains marked IBM's best day since early April 2020.

The 110-year-old technology company has become more favorable to investors this year as central banks have sought to combat inflation with higher interest rates. Although it's not growing as fast as many of its enterprise software competitors, it generates income and continues to pay dividends, which can serve as a hedge against market uncertainty.

Executives said on Tuesday that it will cost more to add talent in the months to come, but the company plans to charge higher prices for consulting engagements. It will also bring out a new mainframe computer, which could help growth. Analysts polled by Refinitiv now see IBM growing 6% in 2022, up from under 4% last year.

"We're incrementally more constructive after two consecutive Q's of outperformance," Morgan Stanley analyst Erik Woodring, who has the equivalent of a buy rating on IBM stock, wrote in a note to clients. The firm's 12-month price target moved to $157 from $150, and it's expecting IBM's revenue to grow 5% in constant currency in 2022, compared with about 4% growth earlier.

Volatility and uncertainty are driving market conditions at the moment, and now that over half of IBM's revenue is recurring rather than based on one-time transactions, it stands to perform better in the current environment than other hardware companies Morgan Stanley is tracking, Woodring wrote. That includes Apple, Dell Technologies, HP Inc. and Xerox.

Bank of America analysts led by Wamsi Mohan, with a buy rating on IBM stock, raised revenue and earnings expectations for 2022, 2023 and 2024. "With the benefits of the Mainframe cycle yet to accrue in 2022/2023, we view the portfolio as defensive (outperforms in a difficult macro environment) and expect sustained revenue growth beyond 2022," they wrote.

Credit Suisse analysts Sami Badri and George Engroff, who also rate IBM stock as a buy, pushed up their estimates for this year and next year and increased their target price on IBM stock by $1 to $166.

Not everyone was feeling better about IBM after the report. Toni Sacconaghi Jr. of Bernstein Research, with the equivalent of a hold rating on IBM stock, mentioned in a note that while IBM raised its full-year expectations "modestly," margins were narrower than expected, and any move higher could be temporary, because 2023 will be a more difficult year for the company.

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