International Business Machines Corporation (NYSE: IBM) may be loved by Warren Buffett now with the huge stake owned by Berkshire Hathaway Inc. (NYSE: BRK.A), but it turns out that the brokerage firm Stern Agee loves Big Blue as well.  The firm has started new coverage of IBM with a “Buy” rating, but more impressive is this $230.00 price target. 

The firm calls its positioned for double-digit earnings growth that is unparalleled in its ability to solve customer problems with its deep industry expertise, broad set of offerings, and global presence.  The $230 target is based solely on a 13.5x multiple on its 2013 earnings estimate of$17.00 in earnings per share (versus $16.42 EPS consensus from Thomson Reuters).

It noted, “We believe the company deserves to trade at a modest premium given its relative predictability and stability, and EPS growth profile of 10%-15%. We believe IBM’s goal of $20.00 in EPS in 2015 is achievable. In our view, the beauty of the IBM story is that double-digit EPS growth is not dependent on the top line, but rather a growing mix of higher-margin software (23% of revenue) through organic means and acquisitions.”

Additional notes are as follows:

• IBM is Arguably the Model Enterprise Company.
• Strategic Advisor of Choice.
• Broad International Exposure.

After closing down 0.4% at $192.82, the 52-week range is $151.71 to $194.90.  IBM’s market value is $223.6 billion and the consensus price target is only $199.33.  Stern Agee’s price target is 15% higher than the rest of Wall Street and it also appears to be the new “street-high” price target if Thomson Reuters is accurate.

This call matters to the DJIA because IBM is the largest component by far as the DJIA index is price-weighted rather than market cap-weighted.  If Stern Agee is correct, IBM’s implied upside is about 19.3%.

JON C. OGG

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