International Business Machines Corp. (
IBM
)
is all set to report its third quarter results on October 16, 2012,
after the markets close. IBM has posted an average earnings
surprise of 3.04% over the trailing four quarters. We don't expect
a major change in the earnings trend pattern for the current
quarter.
Prior Quarter Recap
IBM reported a mixed second quarter (reported July 18, 2012),
with bottom line up in double-digits for the 20
th
time in the last 22 quarters. However, revenue failed to meet the
consensus mark and also declined on a year-over-year basis for the
first time in the last four quarters. Despite the decline, IBM
nudged up its annual earnings guidance by a dime.
For further details please see
IBM Reports Mixed 2Q, Outlook Up
.
Estimate Revision Trend
In the last 30 days, out of the 21 analysts covering the stock,
2 analysts revised their estimates downward. However, the Zacks
Consensus Estimate for the third quarter 2012 remained at $3.61 per
share, indicating that analyst revisions were mostly fine tuning in
nature.
Despite the ongoing macro-economic concerns and unfavorable
foreign exchange rates, analysts expect IBM to report a decent
quarter on the back of robust signings and higher recurring
revenues. Moreover, the strong demand for business analytics and
smarter planet is expected to positively impact the quarterly
results. For the third quarter, the Zacks Consensus revenue
estimate is pegged at $25.43 billion.
Conclusion
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 continuous acquisitions will help it to achieve this
target going forward.
We also believe that a strong patent portfolio and accretive
acquisitions will provide IBM a competitive edge over other
prominent vendors, including
Oracle Corp. (
ORCL
)
,
Hewlett-Packard Co. (
HPQ
)
,
Microsoft Corp (
MSFT
)
and
EMC Corp (
EMC
)
.
However, modestly slower IT growth, primarily due to volatile
macroeconomic conditions; a high level of unemployment; continuing
European debt crisis and unfavorable foreign exchange fluctuations
are expected to negatively impact the forthcoming quarters.
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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