International Business Machines Corp. (NYSE: IBM) has had a very hard time finding any real fans of late, short of Warren Buffett’s wrong timing to invest in Big Blue. Credit Suisse’s Kulbinder Garcha has been the most negative of all IBM analysts for some time now. While there are at least some nearly positive comments in this report, all in all Credit Suisse is by far the most negative firm on Wall Street on IBM.

Credit Suisse’s official rating is Underperform and the official price target is all the way down at $125. This compares to an IBM pre-earnings close of $166.16 and to a consensus analyst price target of about $158.

Garcha indicated that IBM posted another mixed quarter, with revenues again missing expectations. The firm noted that the earnings per share of $2.91 topped the consensus of $2.80. However, saying this was a mixed quarter is being nice. The revenue was down for the 12th quarter and the earnings per share beat was due to another financially engineered quarter.

Again, Credit Suisse remains the most negative call against IBM compared to its Wall Street peers. Garcha said in Tuesday’s analyst report:

We believe the secular and structural challenges facing IBM remain. Consequently, on balance, guidance could again be challenging to achieve operationally. We slightly lower our earnings per share estimate for 2015 to $15.57 from $15.59 and slightly raise our 2016 estimate to $14.66 from $14.64, and see a multi-year painful turnaround ahead.

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Credit Suisse sees the hardware product cycle being in place, and Garcha believes part of the effects of the new Z3 mainframe cycle have been seen. Revenues in mainframe doubled, while software continues to miss expectations after delivering an 8.2% drop in revenues to $5.2 billion.

Services were also weaker than anticipated, down 12% to $12.2 billion. The big point here was the limited growth in the backlog. Frankly, it seemed that Credit Suisse was being nice when talking about limited growth in the backlog when that was $121 billion in the first quarter versus $138 billion a year ago. Garcha added that another concern would be that as the mainframe cycle fades, the secular issues remaining with Software and Services remain a headwind for the total business.

Credit Suisse further talked about IBM’s fundamental concerns remaining in place:

(1) weak order book in services and shrinking industry-wide deal sizes;

(2) shift to the cloud may ultimately be margin dilutive, even if it drives revenues;

(3) restructuring is becoming less effective;

(4) previous concerns over the significant rate of organic declines remain;

(5) weak employee morale and statistics.

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Garcha has said over and over that IBM looks cheap on a headline P/E ratio only. His take is that on a free cash flow basis IBM is not cheap at all, trading at a material premium to EMC, Cisco and Hewlett-Packard.

As far as how Garcha comes to the $125 price target, this is based on a modest 10-times standard free cash flow valuation, suggesting downside of 25% from current levels.

The good news is that IBM shares were not falling out of bed on Tuesday after Monday night’s earnings report. IBM closed at $166.17, against a 52-week range of $149.52 to $198.86, and shares were down marginally at $165.66 after less than an hour of trading.

As far as just how bad a $125 price target is: the consensus target is still listed as $157.89, with a median target on Big Blue of $160. The most optimistic analyst call is up at $198, which would still be 86 cents shy of a 52-week high. Keep in mind that the stock market is effectively at all-time highs.

Things just are not running smoothly for IBM. As far as that cheap headline P/E ratio, that is only 10.5 for 2015.

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