It is no secret that International Business Machines Corp. (NYSE: IBM) has been a lagging stock. It hasn’t helped out that IBM is a Dow stock, nor that Warren Buffett keeps buying up its shares even though Berkshire Hathaway already is the largest shareholder.

Now comes a note from Wells Fargo that IBM is starting to execute on an announced restructuring. Maynard Um, the Wells Fargo analyst behind the call, sees IBM continuing to restructure its workforce to align with strategy.

Monday’s report said:

Media sources (WSJ) noted IBM is laying off several thousand employees in multiple U.S. locations as the company restructures and realigns itself to move more toward cognitive solutions and cloud platforms. We believe these layoffs are part of the restructuring the company has already announced. Besides the strategic initiatives, we believe restructuring is also to reduce costs by moving to low cost regions (some jobs are believed to be moving to India and Costa Rica).

What was interesting is that Monday’s report said that IBM also plans to hire several hundred thousand employees. Um is not being overly aggressive in his views on IBM. Perhaps that is why IBM is rated only as “Market Perform” and why the valuation range is $135 to $150 in that call. Um further said:

While IBM is moving in the right direction by investing heavily in secular growth areas and reducing costs and divesting noncore assets, we believe 2016 will still be a year of transition – legacy businesses are likely to still be pressured while growth in strategic areas still not sufficient to offset those losses. Additionally, we expect IBM to invest heavily into its newer strategic areas in order to increase the chances of success into the future. Although we believe IBM is making the right strategic moves for the long-term, we believe it is still early in the transition and would wait for better visibility into the bottoming of the legacy businesses as well as more concrete measures of the monetization of its newer initiatives.

Wells Fargo’s $135 to $150 valuation range is rather wide. That range was based on about 11 times the firm’s 2016 estimate of $13.55 earnings per share (EPS). Thomson First Call has its consensus estimate for 2016 at $13.53 EPS.

Um did leave room for upside if this restructuring becomes more of a turnaround. He concluded:

We see upside potential if IBM generates higher EPS growth and believe negative risks include potential impact from a weaker economy and execution risks.

Wells Fargo sees IBM as in the midst of transforming its business model to the higher value segments. The firm thinks that the correct strategic steps are being made, but it thinks the transition likely will take some time.

IBM shares were up 0.4% at $147.87 in late morning trading on Monday. The consensus analyst price target is $144.05, and the 52-week range is $116.90 to $173.78.

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