IBM’s third quarter answered the question that has hung over the stock since July. The answer was mostly yes. The rating still stays at Watchlist, because the shares had already priced in most of the good news. One caveat matters: IBM reported after the close on 21 October, so the $251.46 close used here predates any regular-session trading on the results.

Three things went right.

1. The slipped deals came back. About two-thirds of the large Software deals that slipped out of the second quarter closed in the third. Management had allowed six months. It took three. Software revenue grew 8.7% at constant currency, against 4.6% in the second quarter.

2. Guidance moved the right way. Management narrowed its full-year Software growth to about 7-8%, from 6-8%. It also raised free cash flow guidance to growth of more than $1bn, from about $1bn.

3. The beat was clean on the top line. Revenue of $17.10bn beat the $16.82bn consensus, and operating EPS of $2.95 beat $2.86.

Three things still hold the rating back.

1. The tax rate flattered earnings. Operating EPS rose 11%, but pre-tax income rose 8.6%. The operating tax rate fell to 14.7% from 17.0% a year ago. At last year’s rate, EPS growth is closer to 8%. Against the second quarter, pre-tax income was flat.

2. The strongest segment is expected to cool. Transaction processing grew 10% at constant currency, yet IBM guides it flat for the year. The CEO does not expect double-digit growth to continue. IBM Z hardware fell 20%. On the call, management also declined to restate its long-term double-digit Software target and pushed it to a January update.

3. The price moved first. The shares rose 11.5% in the three weeks before the release, including 3.9% on results day itself. At $251.46 they trade at 19.1 times 2027 consensus earnings, up from 17.7 times forward three weeks earlier. Weighted fair value rises to $250.21 from $239.84, just below the price.

That last point decides the rating. The quarter improved the business case, and Management and Risk each gain a point in the scorecard. Valuation loses one.

The buy zone moves up to $220-$230, from $210-$220. That range is 16.5 to 17.3 times 2027 base earnings of $13.30, where the base case would offer 7% to 12% plus a dividend yield near 3%. A Buy without a lower price would need two things: Software near double digits in the fourth quarter, and a January framework that keeps the double-digit target.

Scenario values, the full set of results tables and the trigger list are in the complete International Business Machines (IBM) report on our Reports page.