International Business Machines Corp. IBM will report its second-quarter earnings on July 18 after the close, but analysts are not expecting anything spectacular for investors.
Bernstein analyst Toni Sacconaghi previewed the report, and reiterated a Market-Perform rating and $150 price target. Shares closed on Thursday at $153.63.
The analyst expects IBM to meet or exceed the $2.75 consensus EPS estimate, but doubt revenues will beat the Street’s estimated $19.47 billion.
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Pushing Into The Second Half
Management had guided “well below” consensus EPS for Q2 and Sacconaghi expects EPS guidance of “at least” $13.80 for the year to remain unchanged.
“That said, we think IBM's EPS guidance for full year 2017 is aggressive,” said Sacconaghi in a note. It implies a significantly heavier second half, by a proportion greater than any time in the last 20 years.
The analyst doubts contributions from the mainframe cycle can overcome the implied ramping, and would require a boost from a tax event or one-time gain.
For Q3, Sacconaghi estimates $3.25 EPS compared to the Street’s $3.38 and would not be surprised if IBM follows suit.
Investor Advice
“Should [investors] begin to build positions now?” said Sacconaghi. “Our simple answer: No.”
Those already with a stake in the company though, should look out for five key metrics during the earnings call:
- Total revenue growth on an organic and constant currency basis. The analyst expects to see a negative 1.5 percent change.
- Software business growth on the same standards. Sacconaghi forecasts negative 2.4 percent.
- Strategic imperatives growth, around 9.5 percent according to Sacconaghi.
- Gross and PTI margins, considering Q1’s declines.
- Services signings, which the analyst expects to be $13 billion or more. Related Links: With New Data Center In China, Apple Leads Corporate Reaction To Stringent Cybersecurity Laws Semiconductor Companies Expected To Fuel Growth In Tech Sector Earnings This Quarter _______ Image Credit: By Clockready - Own work, CC BY-SA 3.0, via Wikimedia Commons
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