Sometimes a corporate spin-off works exactly as planned. Kyndryl Holdings, Inc (KD) appears to be one of those rare success stories, and Wall Street is starting to take notice.
On Wednesday, Guggenheim analyst Jonathan Lee initiated coverage on Kyndryl with a Buy rating and a $30 price forecast. His thesis? The company has pulled off a disciplined and effective turnaround since International Business Machines Corp (IBM) spun it off in 2021.
The Triple A Playbook
Lee points to management's "Triple A" framework as the driving force behind the transformation. The strategy focuses on three pillars: Alliances, Advanced Delivery, and Accounts. That meant improving contract-signing quality, automating operations, and enforcing tighter contract discipline.
The results speak for themselves. Adjusted EBITDA margins climbed from 12% in 2022 to 16.7% in 2025, and the company is now generating positive free cash flow. Not bad for a business operating in what Lee describes as a slow-growth segment of the IT services market.
Moving Beyond IBM's Shadow
One of Kyndryl's biggest challenges post-spin was replacing legacy IBM-related deal flow. The company tackled this by expanding partnerships with hyperscalers and technology vendors, which Lee noted helps shift the business toward higher-value offerings like consulting, cloud-enabled managed services, cybersecurity, and data and AI solutions.
At the same time, Kyndryl is standardizing service delivery to boost productivity and free up teams to pursue higher-margin opportunities. The company has also made tough calls on contract economics, exiting or repricing lower-quality engagements to strengthen its portfolio and expand margins.
Management's ambitious goals include tripling cash flow, doubling pretax earnings, and delivering single-digit revenue growth by 2028. Early results suggest they're on track.
Market Opportunity and Risks
While the shift away from legacy infrastructure creates pressure on traditional data center revenue, growth in cloud-based services is expected to offset those declines. The IT infrastructure services market could expand from $900 billion today to $1.2 trillion by 2029. With high barriers to entry and limited scaled competitors, Kyndryl is well-positioned to stabilize and gain market share.
Of course, risks remain. Lee flagged potential delays in deal signings, pricing pressure, cybersecurity execution challenges, and muted valuations. Still, he views Kyndryl as a standout turnaround opportunity in infrastructure outsourcing.
For the third quarter, Lee projected revenue of $3.93 billion and adjusted EPS of $0.85.
