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IBM Gears Up to Report Q4 Earnings: What's in the Cards?

Zacks Equity Research

International Business Machines IBM is set to report fourth-quarter 2019 results on Jan 21.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $4.69, unchanged for the past seven days. The estimate indicates a fall of about 3.7% from the year-ago quarter’s reported figure. For quarterly sales, the consensus mark stands at $21.7 billion that suggests a year-over-year decline of 0.3%.

Notably, the company has four-quarter positive earnings surprise of 2%, on average. In the last reported quarter, IBM delivered positive earnings surprise of 1.5%.

In the last reported quarter, the company delivered non-GAAP earnings of $2.68 per share, which surpassed the Zacks Consensus Estimate by 1.5%. However, the bottom line fell 22% from the year-ago quarter’s tally.

Revenues of $18.03 billion missed the Zacks Consensus Estimate by 1.2% and declined 3.9% on a year-over-year basis. At constant currency (cc), the metric dropped 0.6%.

International Business Machines Corporation Price, Consensus and EPS Surprise


International Business Machines Corporation Price, Consensus and EPS Surprise

International Business Machines Corporation price-consensus-eps-surprise-chart | International Business Machines Corporation Quote


Things to Watch Out

IBM is likely to have benefited from robust adoption of its cloud computing, mobile, security, analytics, cognitive technologies and AI related solutions in the to-be-reported quarter.

Markedly, deal wins and acquisitions are expected to have played an important role in boosting the company’s portfolio and expand clientele in the cloud market. The buyout of Red Hat is likely to have paved way for growth in the hybrid cloud business. In fact, Red Hat’s expanding foothold across Asia Pacific is anticipated to have bolstered IBM’s revenues in the cloud segment.

Further, IBM is striving to enhance efficiency of its quantum computing systems and services. In this respect, growing clientele of IBM Q Network is a positive. With quantum computing initiatives, the company attempts to help enterprises accelerate difficult financial and technical problems in real time.

Additionally, IBM’s growth in industry verticals like health, key areas of analytics and security is likely to have boosted fourth-quarter performance. Notably, Watson Health has been witnessing broad-based growth in Payer, Provider, Imaging and Life Sciences domains.

However, we note that pricing pressures related to the company’s legacy hardware business and ballooning debt levels have been headwinds.

Moreover, the company has been facing declines in its IBM Z product cycle and storage business.

These downsides along with adverse impacts from currency rates might have exerted pressure on the to-be-reported quarter's results.

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for IBM this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

IBM has a Zacks Rank #3 and an Earnings ESP of -0.11.

Stocks to Consider

Here are some stocks you may consider as our proven model shows that these have the right mix of elements to beat estimates this time:

Apple AAPL has an Earnings ESP of +4.08% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Adobe Systems ADBE has an Earnings ESP of +1.08% and a Zacks Rank of 2.

Broadcom AVGO has an Earnings ESP of +5.37% and a Zacks Rank of 3.

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