Photo credit: Mark Ahsmann (Own work), via Wikimedia Commons

IBM IBM shares tumbled 6% on Thursday after the company missed consensus revenue expectations and reported its fifth consecutive quarter of negative sales growth.

Third-quarter revenue was down 4% from a year ago, but IBM’s recently closed Red Hat acquisition was a silver lining. Red Hat revenue was up 19% on the quarter, an acceleration from the 14.8% growth it reported in its last quarter as a standalone company.

IBM also said its new z15 mainframe computer launched in the third quarter could be a revenue growth driver heading into 2020.

Several analysts have weighed in on IBM stock following the disappointing report. Here’s a sampling of what they’ve had to say.

Core Weakness

Morgan Stanley analyst Katy Huberty said Red Hat was a bright spot in an otherwise lackluster quarter for IBM’s core business.

“Mature segments, transaction processing software and traditional outsourcing slowed, which could be indicative of slowing business volumes and more cautionary spending,” Huberty wrote in a note.

Wells Fargo analyst Ed Caso said Global Technology Services was a soft spot in the quarter.

“Expect near-term weakness given Q3 disappointment on core cloud infrastructure transition within GTS,” Caso wrote.

Reasons For Optimism

KeyBanc analyst Arvind Ramnani said investors must be patient with IBM as it integrates Red Hat.

“We think the integration benefits are still in the conceptual phase and have yet to show up in a meaningful financial manner due to a number of underlying cross-currents,” Ramnani wrote.

Bank of America analyst Wamsi Mohan said IBM’s cash trajectory continued to improve in the third quarter.

“In our opinion, investors should focus on the free cash flow (FCF) trajectory that should see a meaningful pickup in 1HC20 including RHT and start of change the growth trajectory of the overall business,” Mohan wrote.

Ratings And Price Targets

• Morgan Stanley has an Overweight rating and $170 target.
• Wells Fargo has a Market Perform rating and $140 target.
• KeyBanc has a Sector Weight rating.
• Bank of America has a Buy rating and $170 target.

IBM's stock traded around $133.56 per share at time of publication.

Benzinga’s Take

IBM continues to struggle to get earnings and revenue growth back on a consistently positive track. While patient investors are getting paid a 4.8% dividend to wait it out, days like Thursday can negate an entire year’s worth of dividends in a matter of minutes.