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Pro Analysis

Buy IBM on stabilizing earnings, solid dividend, Bank of America says

A pedestrian walks past International Business Machines Corp. (IBM) offices in New York, U.S.
Scott Eells | Bloomberg | Getty Images
A pedestrian walks past International Business Machines Corp. (IBM) offices in New York, U.S.

Bank of America Merrill Lynch on Thursday upgraded IBM to buy from neutral, listing a plethora of positive catalysts such as stabilizing earnings and a 3.6 percent dividend yield, which could propel the stock 20 percent higher in the next 12 months.

"We view IBM as a defensive investment given its high exposure to recurring sales, cost cutting levers, solid balance sheet, potential share gains and relatively stable margins," equity analyst Wamsi Mohan wrote in a note to clients. "We believe 2016 should be a bottom for earnings and FCF [free cash flow], and positively view its improving fundamentals."

Since hitting a six-year low in February, shares of IBM are already up 32 percent as value investors have scooped up the stock.