Factors That Are Likely to Impact IBM's Earnings in Q4

International Business Machines Corporation IBM is set to report fourth-quarter fiscal 2017 results on Jan 18 after the market closes. Notably, the company beat the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 3.39%.

IBM’s significant investments in “Strategic Imperatives” — cloud computing, mobile, cognitive technologies and AI are expected to help the company win customers and drive the top line in to-be-reported quarter. Moreover, IBM has also undertaken a number of blockchain initiatives to capitalize on growth opportunity in the industry which is a significant tailwind.

For fourth-quarter fiscal 2017, the Zacks Consensus Estimate for IBM’s earnings per share and total revenues are projected to be $5.17 and $21.96 billion representing an increase of 3.2% and 0.9% from fourth-quarter fiscal 2016.

Let’s see how things are shaping up for this announcement.

Cloud, Security & IoT to Drive Growth

IBM is focusing on cloud computing which is evident from the fact that it continues to open data centers aggressively. Globally, the company owns 60 data centers across 19 countries.

Cloud is included in the Cognitive Solutions (including Watson) and Global Business Services (GBS). Notably, cloud revenues surged 20% from the year-ago quarter in the last reported quarter. Security revenues have advanced 49%. Growth can be attributed to robust performance of security software solutions and strong demand for the pervasive encryption capabilities in new z14 mainframe.

Internet of Things (IoT) revenues increased double digits. IBM signed almost 40 new clients on its IoT platform. The company also launched new products like IoT for Connected Products during the quarter.

Moreover, Strategic Imperatives (cloud, analytics, mobility and security) grew 10% at constant currency from the year-ago quarter.

In recent times, IBM’s cloud-based offerings have been selected by the likes of Syniverse, State of Arizona, Codify Academy, Italian airport operator SEA and Germany-based leading automotive supplier Faurecia.

The initiatives are anticipated to improve IBM’s competitive position in the cloud computing market currently dominated by Amazon’s Web Services and Microsoft Corp.

Notably, for the fourth quarter, the Zacks Consensus Estimate for revenues from Cognitive Solutions and GBS are pegged at $6.378 billion and $4.235, up 6.3% and 0.3%, respectively, from the actual figure reported in the prior-year quarter.

Blockchain Initiatives Gaining Momentum

IBM is involved in a number of Blockchain initiatives as the technology gains rapid mainstream adoption. The company is currently the dominant player in the blockchain market. Recently, CNBC quoted Juniper Research, which placed IBM above Microsoft Corporation in blockchain-related advancements.

IBM uses hyperledger technology for blockchain applications and is also a key member of the Hyperledger committee. This enables the company to gain access to prior notification of any changes in the underlying infrastructure.

IBM has been winning significant deals in recent times. The company has struck bank guarantee deals with ANZ and Westpac and a multi-line insurance contract with American International Group and Standard Chartered PLC. IBM has also inked a deal with global food suppliers and also one with automobile manufacturer, ZF Friedrichshafen to enhance its Car e-Wallet technology. All these efforts will contribute meaningfully to top-line growth in the upcoming quarter.

What the Zacks Model Unveils?

Our proven model conclusively shows that IBM is likely to beat earnings estimates this quarter. Per our model, a stock with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold), has higher chance of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

IBM currently carries a Zacks Rank #3 and has an ESP of +0.24%.

International Business Machines Corporation Price and EPS Surprise

International Business Machines Corporation Price and EPS Surprise | International Business Machines Corporation Quote

Some Other Stocks With Favorable Combination

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Western Digital Corporation WDC, with an Earnings ESP of +0.83% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Seagate Technology PLC STX, with an Earnings ESP of +2.51% and a Zacks Rank of 2.

Helmerich & Payne, Inc. HP, with an Earnings ESP of +11.62% and a Zacks Rank of 3.

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