(By Balachander) Deutsche Bank (DB) raised its price target on International Business Machines Corp. (NYSE:IBM) to $240 from $225, saying the shares are attractively valued.
The bank, which maintained its "Buy" rating on the stock, said IBM's recently refreshed mainframe and a POWER7+ server refresh in early October should support re-accelerating hardware growth in the near term.
The HW refresh should also drive improving growth in Services and Software revenue (5 percent - 6 percent growth historically over past 5 cycles) and drive improving margins, DB wrote.
The bank wrote it expects the mainframe and pSeries product cycles to translate into accelerating growth in Services and Software revenue over multiple Q's. "Specifically, we expect software and services to follow the historical trend (6 month lag vs. hardware ramp) of +5 percent Y/Y growth in Services and +6 percent in Software," DB said.
A favorable business mix should support improving mix and operating leverage going forward, the bank added and raised FY13 EPS estimates to $17.00 from $16.60.
DB said IBM's 2013 EPS will also benefit from around $900 million in productivity initiatives expensed through the P&L in 2012. These charges are primarily targeted at global service fulfillment optimization and headcount rationalization.
The stock, which has been trading in the 52-week range of $168.88 to $211.75, ended at $210.47 on Monday.