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MORGAN STANLEY: IBM has the most upside in the cloud (IBM)

Morgan Stanley expects IBM's three billion dollar public cloud business to grow by 33% raises price target.

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Last week, Morgan Stanley released a report on cloud computing, that evaluated the major players in the cloud (IBM, BABA, ORCL, AMZN, MSFT, GOOGL, SAP) by compiling estimates of "revenues, expenses, and capital requirements through 2020 to yield cloud free cash flow."

Their findings: IBM has the most upside potential followed by Alibaba.

Morgan Stanley thinks IBM's $3 billion public cloud business will grow by 33% from 2016-2020.

Additionally, the bank found that IBM's traditional businesses are currently undervalued, trading at 1.7x Enterprise Value/Sales, 10% below the average 5-year ratio. IBM would need EV/Sales to be at 2.1x in order for the metric to be in line with its peers.

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One of the big stories at IBM has been its loss of revenue as a result of decaying revenue streams from outdated technology. However, the analysts note that they expect those declines to "stabilize as the pool of non-cloud revenues shrinks."

Morgan Stanley believes that future catalysts like Watson and blockchain technology will come farther down the road but that they're closer to substantial monetization than some might think.

Morgan Stanley raised its price target on IBM to $212.00 from $187.00 and maintained their outperform rating. IBM shares are up 6+% so far this year. To get a real-time quote of IBM stock click here.

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