Prudential Raises Estimates on IBM

Analyst Steven Fortuna expects further improvement in Big Blue's margins

IBM Corp. (IBM ) posted $1.26 third quarter earnings per share. Prudential raised its estimates on Big Blue and reiterates its overweight rating.

Analyst Steven Fortuna says third quarter EPS was very solid, handily ahead of the Wall Street consensus forecast of $1.13, driven by solid cost management and well executed restructuring actions. Despite what is normally a seasonal decrease in utilization, services margins improved quarter-over-quarter to 9.3%, due to benefits from cost reduction efforts, and a renewed focus on execution; Fortuna expects further improvement in the fourth quarter and in 2006 as utilization rates improve and incremental cost savings kick in. Thw analyst adds that bookings rose 13.5%, driven by strong growth in long-term signings. He raised his $1.95 fourth quarter EPS estimate to $1.98, and his full-year 2006 forecast from $5.55 to $5.75. He has a $105 price target.

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