International Business Machines Corp shares climbed 11 percent, their biggest gain since January 2001, after Lehman Brothers Holdings Inc analyst Dan Niles raised his rating on the world's biggest computer maker.
IBM gained US$6.34 to US$63.92 as of 4:17pm in New York Stock Exchange composite trading after Niles rated the shares "overweight," Lehman's highest rank. Other computer and software shares rose, including Computer Associates International Inc, Network Associates Inc and Cypress Semiconductor Corp, which were among the biggest gainers.
Niles, known for accurate calls on slowing demand at Intel Corp last year and Dell Computer Corp in 1999, upgraded IBM shares to "buy" in January when they traded at about US$117, then trimmed them to ``equal weight'' in August. Now, he says IBM will recover from a sales slump when the economy picks up next year, and the stock's 47 percent drop in 2002 makes them a good investment again.
"The US business is turning," Niles, 35, said in an interview. ``This is what we've been waiting for.'' Of analysts that cover IBM, 16 recommend buying the computer maker's shares, and 10 suggest holding them, according to Bloomberg data. Goldman, Sachs & Co analyst Laura Conigliaro reduced her earnings estimates for IBM on Tuesday, saying the slump in computer-related spending will extend into the first half of next year. IBM has been on her list of recommended stocks since April 2001.
IBM and rivals have been hurt by a worldwide slowdown in spending on computer hardware, semiconductors and services since 2000. The company missed sales estimates by US$1 billion in the fourth quarter last year and the first quarter this year. The company's third-quarter profit is likely to match forecasts, Niles said today.
The Armonk, New York-based company is expected to report Oct. 16 that it earned 96 cents a share on sales of US$19.7 billion, the average estimates of analysts surveyed by Thomson First Call.
The company earned US$0.90 on sales of US$20.4 billion in last year's third quarter.
Sales growth in the US will be slightly higher than expected, the analyst said. Europe will lag, as its businesses put off purchases, worried by a US-led war breaking out with Iraq.
IBM's sales worldwide fell 5.7 percent in the second quarter and dropped 12 percent in the first.
"When information technology spending returns in 2003, the demand for business process and productivity-enhancing information solutions should return, and this is what IBM is best positioned to deliver," Niles wrote in a report.
Aiming to boost profit and sales, Chief Executive Sam Palmisano agreed to sell IBM's money-losing hard-disk-drive unit this year, and the company said in August it had eliminated about 15,600 jobs.
IBM also enlarged its services business in October, buying PricewaterhouseCoopers LLP's business-consulting unit for US$3.5 billion.
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