As Risks Mount For IBM, Look For Shares To Trade Range Bound

International Business Machines Corp. IBM is scheduled to report its Q3 results on October 17. “We expect the stock to remain range-bound as we think the quarter will be viewed as solid at a headline level,” Goldman Sachs’ James Schneider said in a report. He maintains a Neutral rating on the company, with a price target of $147.

Schneider expects IBM to report its headline revenue in line with the forecasts, with organic revenue declines being offset by contributions from the company’s several recent acquisitions, which is estimated to contribute ~200bps to reported growth.

IBM may report a modest EPS upside, with some margin expansion resulting from its restructuring efforts. While the cognitive solutions and tech services & cloud segments are likely to have increased modestly, there is likely to have been a slight decline in global business services, Schneider mentioned.

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Upside To Stock

The analyst stated that although IBM’s stock is expected to remain range bound due to mounting cyclical risks, two factors may drive the stock in the medium term:

• Organic revenue growth: “IBM is benefiting from outsized M&A in 2016, and we believe the market is likely to focus on organic revenue – particularly in Software – given our checks which suggest growing pressure to discretionary IT spending budgets,” Schneider wrote.
• Margins: Restructuring benefits may give a modest boost to the Q3 margins and EPS. “We believe investors are focused on margins exiting 2016, particularly on whether restructuring can offset dilutive acquisitions and negative mix shift,” the analyst noted.

At last check, IBM was down 1.17 percent at $155.19.

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