Shares of International Business Machines Corp have significant room for growth and merit trading at a higher multiple, financial weekly Barron's said in its Sunday edition.
IBM plans to boost top-line growth and expand in developing countries, Chief Executive Sam Palmisano told Barron's in an interview. He also said the company is on a campaign to make urban infrastructure more productive.
IBM has a contract with London to run the technology and payment services behind the city's new traffic-congestion charge system. In New York, it integrated crime-data systems. And in China, IBM is creating a modern digitalized power grid, the article said.
IBM also plans to debut Watson, a computing system designed to parse questions intelligently and compete with human contestants in the television game show Jeopardy. The machine might remind many of IBM's Deep Blue computer, which beat chess champion Garry Kasparov in 1997.
IBM shares trade at 11 times earnings forecasts for 2011 -- lower than the market's multiple of 13.3 times.
For a company with this kind of value proposition, with double-digit earnings growth and better than average price stability, a market multiple is not unreasonable, Sanford C.Bernstein analyst Toni Sacconaghi was quoted as saying.
The article also said global information technology spending will likely come back next year, creating an opportunity for IBM in the services sector, where it owns just 7.3 percent of the market.
IBM shares, which have climbed more than 50 percent this year, closed at a 52-week high on Thursday of $130.57 on the New York Stock Exchange.
(Reporting by Jui Chakravorty; Editing by Leslie Adler)