IBM Stock Sags After Analyst Downgrade

After the downgrade to Underperform from In-Line, IBM's stock price dropped about $1 Thursday morning but then recovered somewhat. By mid-afternoon, the stock was trading at $87.55, a drop of 29 cents from the day before.

The analyst, Richard Gardner, noted that IBM recently announced a $2 billion services deal with Qwest Communications International but suggested that that wasn't enough to perk up the vendor's overall business.

"Even if IBM books [$15 billion] in services contracts in [the third quarter] and another [$15 billion] in [the fourth], full-year bookings will still decline 3 percent to 5 percent in 2003 [excluding PwC], and this year's bookings is obviously one of the key determinants of next year's revenue growth," Gardner wrote. "We think current consensus estimates for the IBM services division may prove slightly aggressive and certainly do not seem a compelling reason to raise our current 2004 services growth estimate of 7 percent."

While IBM is in a good position because of its strong notebook line, much of that segment's growth would be in the consumer arena, Gardner said. "The company is significantly underweight in the portion of the notebook market that is driving the most growth," he said.

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