“Big Blue” No Longer Singing the Blues

One Wall Street firm is saying this morning he difficult times for IBM (NYSE: IBM) shareholders are over.

RBC Capital Markets raised its rating for the technology company to outperform from sector perform, citing the stock's inexpensive valuation.

"We think IBM is an attractive large-cap value stock for investors in 2018 as the potential for revenue and margin stability should enable a re-rating," analyst Amit Daryanani wrote in a note to clients Wednesday.

"A return to gross margin stability coupled with revenue growth in 2018 should set-up the stock for a year of outperformance especially considering the depressed valuation."

IBM underperformed the market in 2017 with its shares down 8% versus the S&P 500's 19% return

The analyst said IBM generates roughly half of its revenue from "annuity-like" services contracts and software licenses. He said the company's valuation of 11 times price to earnings and more than 3% dividend yield are "very attractive.

Daryanani increased his price target for IBM shares to $180 from $160, representing 17% upside to Tuesday's close.

"IBM represents the best mix of technology businesses in the enterprise segment," he wrote. "We think IBM has cultivated the preeminent technology portfolio.

The year 2017 ended with a big sigh of relief for “Big Blue”, on word the company had reached agreement to resolve the patent lawsuit between IBM and The Priceline Group (NASDAQ: PCLN) pending in the United States District Court for Delaware. As part of the confidential settlement, the parties will obtain patent cross-licenses to each company's worldwide patent portfolio.

IBM shares galloped $2.32, or 1.5%, to $156.57.