BofA Merrill Lynch raised its price target on shares of IBM following the company's third-quarter beat, and said it expected the blue chip to cut costs further, given the slowdown in IT spending.

On Tuesday, IBM increased its 2011 profit outlook but fell short of high expectations after recent strong reports from Oracle and Accenture.

IBM shares were down 5 percent at $178.00 in premarket trading on Tuesday.

Longer term, we view IBM as a share winner in the IT spending market, the brokerage said in a research note.

BofA Merrill, which expects IBM to ramp up its software and services products and boost revenue through acquisitions, raised its price target to $205 from $190.

Admittedly, third-quarter results are not likely to serve as a positive near-term catalyst for the shares, but the company remains on track to deliver low double-digit EPS (earnings per share) growth despite a challenging macroeconomic backdrop, Citigroup said in a research note.

The brokerage reaffirmed its buy rating on IBM's shares.

(Reporting by Sayantani Ghosh in Bangalore; Editing by Maju Samuel)

Bank of america Ibm Price Target