Morgan Stanley increased its 12-month price objective on IBM (NYSE:IBM) to $304.00 from $252.00, while retaining an Equalweight recommendation on the shares. At the time of the note, IBM was trading at $294.16 and carried a price-to-earnings ratio of 35.23, a multiple InvestingPro characterizes as high relative to near-term growth prospects.
The firm's adjustment to its valuation was driven primarily by IBM's free cash flow (FCF) performance in 2025. The company generated $14.7 billion of FCF for the year, ahead of management's initial guidance of $13.5 billion. On a levered basis, IBM's trailing twelve-month free cash flow totaled $12.47 billion, which equates to a 5% free cash flow yield.
Morgan Stanley analyst Erik Woodring highlighted several operational drivers that supported the stronger quarter. He pointed to Enterprise License Agreement (ELA) renewals and incremental upside in mainframe results as contributors to the technology company's fourth-quarter outperformance.
The research note outlined that software and consulting revenue trends remain uneven, and Morgan Stanley said IBM's outlook for 2026 appears skewed toward the back half of the year. Despite the notable increase to the price target, the firm chose not to raise its rating above Equalweight, citing the improved free cash flow as the key input for the revised valuation rather than a change in near-term growth visibility.
IBM's December quarter results were broadly positive versus consensus. The company reported adjusted earnings per share of $4.52, beating the expected $4.29, and posted revenue of $19.7 billion against forecasts of $19.22 billion.
Other brokerages reacted to the quarterly beats with their own target revisions. Evercore ISI increased its price target to $345 from $330 and maintained an Outperform rating, citing the company's better-than-expected December quarter and noting broad-based growth across IBM's segments, with overall sales up 12% in the period. BMO Capital also raised its target, taking it to $350 from $305 while keeping a Market Perform rating; the firm described the quarter as reasonable, noting some softness in Red Hat and Consulting offset by strength in Data and strong free cash flow.
Collectively, these analyst moves reflect a reassessment of IBM's near-term cash generation and quarterly execution. At the same time, firms that upgraded targets did not uniformly change their ratings to stronger stances, underscoring continued caution around uneven software and consulting momentum and the company-specific timing of 2026 growth.
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