International Business Machines Corp. (IBM) spun off slow-growing legacy operations into Kyndryl Holdings Inc. (KD) earlier this month but the investment community has turned a cold shoulder to the slimmed-down IBM, yielding a fresh series of 52-week lows. However, this services and software business is expected to compete more forcefully with Microsoft Corp. (MSFT) and other cloud players, posting mid-single digit annual revenue growth through 2024.

Slow Transition to Growth

Arvind Krishna took the CEO helm at IBM in 2020, vowing to transition the beaten-down tech behemoth into a growth story. The spin-off was an important first step in this transformation but, so far at least, the schism has won over few long-time bears. However, when taken together with growth projections and a hefty 5.6% dividend, his appointment could finally lift Wall Street ratings, generating a long-term bottom and uptrend that translates into healthy annual returns.

Bank of America hardware analyst Wamsi Mohan discussed Krishna’s potential impact in a weekend interview, comparing his ascent to Microsoft Corp (MSFT) in 2014 when new CEO Satya Nadella heralded years of superior performance. As he notes, “Microsoft is an interesting comparison. I look at Arvind as a leader that could be as transformational as Satya. There is an increased appetite on the Street to understand the trajectory of the business. If the stock starts to move higher, you could get a performance chase.”

Wall Street and Technical Outlook

Wall Street consensus is dismal as noted above, with a ‘Hold’ rating based upon 5 ‘Buy’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. In addition, many small firms have ceased coverage, highlighting chronic apathy. Price targets currently range from a low of $110 to a Street-high $164 while the stock is set to open Monday’s session $7 above the low target. This humble placement should improve in coming months but investors may sit on their hands for now to avoid end-of-year tax selling pressure.

IBM posted an all-time high at 215.90 in 2013 and entered a brutal downtrend that’s carved a long series of lower highs and lower lows. The last rally impulse failed at 146 in June 2021, giving way to a steady downtick that’s relinquished about 30 points into this week’s opening print. The stock has posted intermediate lows at 112, 101, and 86 in the last five years, suggesting that buyers trigger another rally wave between now and the first quarter of 2022.

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