Today the stock closed up $3.10, almost 2%, at $159.31, after dipping slightly yesterday, suggesting investors are warming to what they heard.
Even some bulls are scratching their heads, though, about the fact that there’s no time frame for growth rates.
Kavanaugh, in a phone conversation, intimated that avoiding explicit targets was somewhat by design.
“Our goal was to make sure people understand we have repositioned this company, to win in the marketplace today and in the future,” Kavanaugh told me.
The discussion, which was not in person but rather webcast — you can view a replay on IBM’s investor relations site — included a reiteration of long-term intentions by Kavanaugh, including “low single-digit revenue growth.” He also provided some new metrics, such as the company’s “as-a-service” businessat some point achieving “an exit run rate of growth of 15-20% annually.”
The event is part a “wave” of events IBM will have, he said, as a new approach to talking with the Street. The next even is on March 20th, IBM’s annual “THINK” conference, in Las Vegas. There will be various “deep dives” on topics such as Watson A.I. and blockchain throughout the year, he said.
Wall Street mixed on the news
Reaction has been mixed. Among the most bullish, Katy Huberty of Morgan Stanley this morning reiterated her Overweight rating, and $198 price target, writing that IBM is positioned to lead in a “new computing cycle” dominated by things such as A.I. She believes that the bottom line is “IBM is returning to growth.”
Others, while bullish, noted the stock’s weak reaction yesterday.
Stifel Nicolaus’s David Grossman reiterates a Buy rating on the stock, and a $182 price target, writing that the weakness in the stock following the event is a bit of a mystery, given the company mostly reiterated what it has said in past.
“We are unsure what is driving today’s under performance; however, it may reflect the absence of a timeline for the company to achieve its financial targets. More to follow after the 3/19 event.”
A lesson learned
If things seem a bit vague, that is perhaps because, Kavanaugh tells me, he has learned the hard way that setting traditional financial targets can be a vexed matter.
“You’re talking to the guy who put in place the original long-term financial roadmap for this company years ago,” Kavanaugh reflected.
“In that time period, we used to run specific financial targets, with transparency into the operating levers, for a period of time like three to 5 years. And, we got off that model in 2014, as we had to embark on this transformation that is now culminating in a cloud platform and cognitive solutions company.”
“I’m skewed a certain way because I lived it and breathed it and developed it and operationalized it,” he continued, referring to the old way of forecasting, “but I learned a tough lesson.”
The tough lesson, he said, was “I found out, when this industry moves so fast, you can’t get locked into something that’s long-term that might prevent you from identifying new, emerging areas of opportunity; we’ve got to be agile and adapt.”