UBS Analyst Expects Strong Fourth Quarter From IBM

IBM is on track for strong fourth quarter results due to an uptick in services bookings, pent-up hardware demand driven by new products, and additional revenue produced by software acquisitions, according to a Monday report from investment researchers at UBS AG.

The bank raised its share price target on IBM from $94 to $100 while maintaining a "neutral" rating on the stock. "It's a discount to competitors like HP, which are growing faster," said UBS analyst Benjamin Reitzes, in a report. His fourth quarter EPS estimate of $2.20 for IBM remains unchanged.

Reitzes raised his estimate of fourth quarter services bookings for IBM to $13 billion to $14 billion, up from $12 billion to $13 billion--in part thanks to a potential 10-year, $1.16 billion dollar outsourcing deal with the state of Indiana.

He's also predicting fourth quarter hardware sales will increase 9% year-over-year to $7.5 billion, driven in part by new IBM blade servers based on AMD's Opteron chip. However, Reitzes believes IBM's hardware sales for 2006 overall will decline 6% compared with 2005.

The analyst forecasts that IBM's fourth quarter software sales will jump 13% to $5.6 billion while total software sales for 2006 will be up $20% to $18.1 billion "with the company continuing to realize benefits from its acquisitions made in the third quarter."

IBM's third quarter software acquisitions included Webify, Rembo Technology, Unicom Solutions, and BuildForge. The company is expected to announce its fourth quarter and full year results for 2006 in January.