What's In Store For IBM's Q4 Earnings Report?

Stifel has raised its price target for International Business Machines Corp. IBM from $165 to $192 ahead of the world's largest IT company's Q4 earnings report, which drops January 19.

IBM’s EPS is estimated by Stifel at $13.50 for fiscal 2016.

What To Expect

Investors should be aware of the potential for currency estimates to be revised downward and for currency to have an impact on fourth-quarter revenue of about 100 basis points. The company also faces a “difficult” interplay between cash flow and tax rates, Stifel said.

IBM is a company in transition, entering a “pivotal” year, Stifel said. It’s one with strategic imperatives — including cloud computing — growing at about the same rate that the company’s legacy business — including hardware — is declining.

IBM's stock outperformed the S&P 500 by 10 points in 2016, Stifel added. Despite two years of lower earnings, analysts said the company’s "modest" outmatching of revenue and earnings-per-share estimates, meeting of cash flow targets and dividend payments could help explain its market performance.

Another positive highlighted in the report: IBM’s mainframe product cycle is likely to hit in 2017, and the company is expected to ship new Power9 servers as well.

Building New Business

Strategic imperatives account for 42 percent of IBM’s revenue, up from 35 percent a year ago, according to Stifel.

Artificial intelligence is among IBM's various areas of emphasis, a space in which it's a leader. That line of development led to IBM being on the receiving end of the most patent awards in the United States in 2016, CNET reported.

Furthermore, it’s key that the cloud business offsets declines in hardware sales, according to a story from the Motley Fool late last month, as IBM’s earnings and revenue have dwindled in recent years.

The Motley Fool also noted the IT giant’s sensitivity to currency fluctuations due to its dependence on international markets. However, its strengths were highlighted as including its tremendous customer base.

“There’s a chance that IBM ends up being structurally less profitable than it has been in the past. That’s the biggest risk facing investors,” the Motley Fool said of IBM shareholders.