Kyndryl Holdings (NYSE:KD) has received a 'Buy' rating from an analyst, presenting a potential 'buy the dip' opportunity despite recent underperformance against its peers. The upgrade is predicated on the company's ongoing post-spin-off turnaround, accelerating contract signings, and strong earnings and free cash flow growth projections.

Kyndryl Holdings, Inc. (NYSE:KD), a significant entity in the global enterprise technology services market, has drawn considerable analyst attention following a period of underperformance relative to its industry counterparts. Despite experiencing volatility and mid-single-digit year-to-date losses in 2025, an analyst has issued a 'Buy' recommendation, characterizing the current market weakness as an opportune moment for investment.

The Event in Detail

Kyndryl Holdings has navigated a rather uneven 2025, with its shares losing ground by mid-single-digits year-to-date. This performance contrasts sharply with the broader Software and Services Sector, which has recorded gains of approximately 4% over the same period. Peers within the S&P Midcap 400 Index have fared even better, advancing by an average of about 7%.

This relative underperformance led to a significant development on September 14, 2025, when an analyst upgraded Kyndryl from a 'Hold' to a 'Buy' rating. The rationale behind this upgrade centers on the belief that the company is effectively executing its post-spin-off turnaround strategy, presenting a compelling investment case during its current valuation dip. Earlier in the year, Kyndryl's shares saw a notable decline of 9.5% after reporting first-quarter revenue that missed analyst estimates, despite meeting earnings projections.

Analysis of Market Reaction

The analyst's 'Buy' thesis is underpinned by several key financial and strategic indicators. Kyndryl's contract signings are accelerating robustly, exhibiting over 40% growth, coupled with a strategic pivot towards high-margin, high-value work. This shift is anticipated to drive positive constant foreign exchange (FX) revenue growth for the current year.

From a valuation perspective, Kyndryl is currently priced at a Price-to-Earnings (P/E) ratio of just 15x. This represents a marginal discount when compared to the average multiple of 15.1x for other IT consulting businesses. Crucially, the company is projected to deliver an impressive medium-term earnings Compound Annual Growth Rate (CAGR) of 60%, with its Earnings Per Share (EPS) base expected to grow from $1.09 last year to $4.45 by March 2028. This substantial earnings growth potential, combined with its current P/E, results in an implied Price-to-Earnings Growth (PEG) ratio of just 0.25x, suggesting significant undervaluation relative to its growth prospects.

Furthermore, Kyndryl offers a forward Free Cash Flow (FCF) yield of 7%. Historically, Kyndryl stock had been accustomed to a negative FCF yield, averaging over -7%. However, this trend has reversed, with the current trailing FCF yield exceeding 3%. FCF is projected to expand by 23% year-over-year, reaching $550 million by the end of fiscal year 2026 (FY26), which implies a forward FCF yield of over 7%. Beyond FY26, the pace of FCF generation is expected to accelerate further, potentially crossing the $1 billion FCF mark with an implied 2-year CAGR of 35%.

Broader Context and Implications

Kyndryl's strategic repositioning involves a concerted effort to clean up its portfolio, setting the stage for multi-year annual positive top-line growth. The increasing pace and quality of contract signings are considered leading indicators of this positive trajectory. The company has also been actively engaged in share repurchase programs, buying back 1.8 million shares for $65 million during one recent quarter under its $300 million authorization. Technically, the stock has found support against its two-year-old trendline and appears less overextended than some of its technology peers.

Despite the positive outlook on earnings and FCF, a notable concern persists regarding Kyndryl's top-line growth. Projected top-line growth through 2028 is expected to be less than 4%, which may not fully appeal to tech-focused investors, especially given that global enterprise IT spending is anticipated to grow at a higher rate of 8-9% over the next five years. The company's hyperscaler-related revenue did grow impressively by 86% year-over-year to $400 million, and Kyndryl Consult revenues increased by 30%, indicating success in higher-growth areas. However, nearly a third of its revenues still originate from lower-margin legacy contracts.

Expert Commentary

The analyst community largely echoes this positive sentiment. As of September 16, 2025, Kyndryl Holdings maintains a 'Buy' consensus rating from six analysts, with some sources indicating a 'Strong Buy' average from several others. Zacks has also reported an Average Brokerage Recommendation (ABR) of 1.40, approximating between 'Strong Buy' and 'Buy.'

"We view the current bout of weakness as a good opportunity to pursue a business that continues to execute well on its post-spin-off turnaround journey," stated the analyst who upgraded Kyndryl's rating.

Oppenheimer, a prominent financial institution, notably raised its price objective for Kyndryl from $47.00 to $55.00 with an 'outperform' rating on July 8, 2025, implying a significant potential upside from current levels.

Looking Ahead

Kyndryl management has maintained its fiscal year 2026 guidance, projecting adjusted pretax income of at least $725 million, an adjusted EBITDA margin of approximately 18%, free cash flow of approximately $550 million, and constant-currency revenue growth of 1%. The company's strategic focus on accelerating high-margin contract signings and transitioning away from legacy services will be critical to sustaining its growth trajectory.

Investors will be closely monitoring Kyndryl's ability to translate its strong earnings and FCF generation into more robust top-line growth that aligns with broader industry trends. The continued execution of its strategic turnaround, coupled with its attractive valuation metrics, positions Kyndryl as a company with considerable potential, contingent on its capacity to expand its market share in the competitive enterprise technology services landscape.