International Business Machines Corp
(
IBM
) is set to release its fiscal first quarter 2012 results after the
closing bell today. In the run up to the earnings release, no
significant changes in analyst estimates were noticed.
We note that IBM has posted an average earnings surprise of
1.84% in the trailing four quarters, implying that it has outdone
the Zacks Consensus Estimate by the same magnitude for the said
period. We don't expect a major change in the earnings trend
pattern for the current quarter.
Prior Quarter Recap
IBM reported modest fourth quarter 2011 results with earnings
per share surpassing the Zacks Consensus Estimate by 9 cents but
revenues falling shy of Zacks Consensus Estimates of $29.74
billion.
IBM posted non-GAAP EPS of $4.71 in the fourth quarter, up 10.8%
on a year-over-year basis and representing double-digit growth in
18 of the last 20 quarters. The significant upside was primarily
driven by solid revenue growth, margin growth and share
repurchases.
Total revenue increased 1.6% year over year (1.0% adjusted for
currency) to $29.49 billion. The upside was driven by continued
strength across its growth markets, which accounted for 22.0% of
IBM's total geographic revenue in the fourth quarter. IBM's key
initiatives such as Business Analytics, Smarter Planet and Cloud
offerings also maintained the growth momentum in the fourth
quarter.
For further details please read:
IBM Reports Modest 4Q
Estimate Revision Trend
In the last thirty days, only one out of the 18 analysts
covering the stock raised estimates for the current quarter, while
none moved in the opposite direction. The Zacks Consensus Estimate
for the quarter's earnings per share increased by a cent to $2.63
per share.
For fiscal 2012, two upward revisions were noticed from the 22
analysts covering the stock. The Zacks Consensus Estimate for
fiscal 2012 is pegged at $14.87 per share. The earnings estimate of
$14.85 provided by IBM was below the Zacks Consensus Estimate.
Analysts expect IBM to post solid results on the back of new
services contact signings. Moreover, strong software demand is
expected to impact the quarterly results positively. However,
sluggish server market could act as a near-term headwind for the
company.
Conclusion
IBM has been one of the most consistent performers, with a
22.16% return over the last one year. However, a modestly slower IT
growth primarily due to volatile macroeconomic conditions; high
level of unemployment; continuing European debt crisis and
unfavorable foreign exchange fluctuations are expected to be the
near term headwinds for the forthcoming quarters, in our view.
We believe that IBM remains well positioned for long-term growth
based on its four key growth initiatives: smarter planet, growth
markets, business analytics and cloud computing, which are expected
to deliver at least $50 billion in revenues by fiscal 2015. We
believe that IBM's strong product pipeline, expansion into emerging
markets and strategic acquisitions will help it to achieve this
target going forward.
We also believe that a strong patent portfolio and accretive
acquisitions in the field of business analytics and other growth
initiatives will provide IBM a competitive edge over its peers,
including
Oracle Corp. (
ORCL
)
,
Hewlett-Packard Co. (
HPQ
)
,
Microsoft Corp (
MSFT
)
and
EMC Corp (
EMC
)
.
We have a long-term Neutral recommendation on IBM and are
optimistic about its strong fundamentals and robust growth
prospects going forward. Currently, IBM has a Zacks #3 Rank, which
translates into a short-term Hold rating.
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EMC
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IBM
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