IBM, Amphenol added to Evercore's Tactical Outperform list ahead of earnings

Evercore added IBM (NYSE:IBM) and Amphenol (APH) to its Tactical Outperform list ahead of the companies' quarterly results.

The firm maintained its Outperform rating and $215 target on IBM's shares.

IBM is well-positioned to sustain mid-single-digit sales-growth steered by a combination of secular growth in consulting, improved execution and price increase benefits on the software side, according to a team of analysts led by Amit Daryanani. They also believe that AI benefits will start to accrue and be more material in CY25 and beyond.

The analysts said that they were adding IBM to their Tactical Outperform list ahead of the company's March-quarter results on April 24. They expect the company to report revenue/EPS of $14.6B/$1.60, or in-line to moderate upside versus consensus estimates ($14.5B/$1.58).

Daryanani and his team noted that although there have been concerns surrounding the potential for weakness in Consulting given the softness at Accenture (ACN) (the company guided their FY24 revenue lower last month), they think recent macro and IT spending data points have been improving and Consulting momentum should continue.

In addition, the analysts think their/consensus estimates are prudent and are tracking slightly below historical seasonality (-16% quarter-over-quarter versus -15% historically). For CY24, the analysts expect guidance calling for mid-single-digit revenue growth and $12B in free cash flow, or FCF, to remain unchanged.

According to Evercore, the key focus areas for investors on the upcoming earnings call include — AI: Bookings and/or revenue metrics and expectations for overall contribution to 2024; RHT Performance/Outlook: Trajectory of RHT business: progress toward re-acceleration to double-digits; Consulting growth durability: Drivers of strength and IBM's ability to outpace the broader services market; FCF: Progress toward $12B outlook.

Amphenol (APH): Evercore thinks the company is positioned to beat March-quarter, with IT/Datacomm and Mobile Devices driving upside. The analysts expect Amphenol to provide a June-quarter outlook which brackets consensus estimates while raising CY24 expectations (Q1 upside + potential CIT Carlisle Interconnect Technologies, or CIT, business contribution).

Daryanani and his team believe Amphenol is positioned to report upside versus current street estimates for March-quarter given a fairly prudent guide that implies revenues to be down -8% sequentially (versus historic seasonality at down mid-single-digits).

The analysts see AI tailwinds, improving Mobile Device data points (mainly for PCs), and a largely stable auto backdrop driving upside (partially offset by weaker industrial/networking spend).

The analysts think Amphenol's June-quarter guidance should track in-line with consensus calling for mid-single-digit quarter-over-quarter growth while CY24 estimates should move moderately higher to reflect first quarter upside (contribution from the CIT deal could drive further upside as well).

June-quarter guidance could see a sizable upside depending on when the M&A transaction closes and if the company can include it in their outlook, the analysts added.

Key data points according to Daryanani and his team include — IT/Datacomm: They think this business could be a vital source of upside given the ramp in AI infrastructure investments and anecdotes of improvement in non-AI IT spend as well.

Automotive: Mostly stable/positive automotive sales data across North America (March seasonally adjusted annual rate, or SAAR, came in light but was still up year-over-year), EU (tracking toward mid single-digits, year-to-date), and China (March production up +6% year-over-year).

Mobile Devices: The first quarter outlook is tracking in-line with historical seasonality, though the improving outlook for handsets and PCs could be a source of upside, according to the analysts.

Industrial/Aero: The analysts believe that industrial data points remain softer (factory automation in the EU) while the potential impact from increased quality checks at Boeing that have weighed on aircraft deliveries will be something to monitor as well.

IBM (IBM) has a Hold rating at Seeking Alpha's Quant Rating system, which consistently beats the market. The Seeking Alpha authors' average rating is more positive with a Buy, while the average Wall Street analysts' rating is Hold.