International Business Machines Corp (IBM) is set to release its fiscal first quarter 2012 results after the closing bell today. In the run up to the earnings release, no significant changes in analyst estimates were noticed.
We note that IBM has posted an average earnings surprise of 1.84% in the trailing four quarters, implying that it has outdone the Zacks Consensus Estimate by the same magnitude for the said period. We don’t expect a major change in the earnings trend pattern for the current quarter.
Prior Quarter Recap
IBM reported modest fourth quarter 2011 results with earnings per share surpassing the Zacks Consensus Estimate by 9 cents but revenues falling shy of Zacks Consensus Estimates of $29.74 billion.
IBM posted non-GAAP EPS of $4.71 in the fourth quarter, up 10.8% on a year-over-year basis and representing double-digit growth in 18 of the last 20 quarters. The significant upside was primarily driven by solid revenue growth, margin growth and share repurchases.
Total revenue increased 1.6% year over year (1.0% adjusted for currency) to $29.49 billion. The upside was driven by continued strength across its growth markets, which accounted for 22.0% of IBM’s total geographic revenue in the fourth quarter. IBM’s key initiatives such as Business Analytics, Smarter Planet and Cloud offerings also maintained the growth momentum in the fourth quarter.
For further details please read: IBM Reports Modest 4Q
Estimate Revision Trend
In the last thirty days, only one out of the 18 analysts covering the stock raised estimates for the current quarter, while none moved in the opposite direction. The Zacks Consensus Estimate for the quarter’s earnings per share increased by a cent to $2.63 per share.
For fiscal 2012, two upward revisions were noticed from the 22 analysts covering the stock. The Zacks Consensus Estimate for fiscal 2012 is pegged at $14.87 per share. The earnings estimate of $14.85 provided by IBM was below the Zacks Consensus Estimate.
Analysts expect IBM to post solid results on the back of new services contact signings. Moreover, strong software demand is expected to impact the quarterly results positively. However, sluggish server market could act as a near-term headwind for the company.
IBM has been one of the most consistent performers, with a 22.16% return over the last one year. However, a modestly slower IT growth primarily due to volatile macroeconomic conditions; high level of unemployment; continuing European debt crisis and unfavorable foreign exchange fluctuations are expected to be the near term headwinds for the forthcoming quarters, in our view.
We believe that IBM remains well positioned for long-term growth based on its four key growth initiatives: smarter planet, growth markets, business analytics and cloud computing, which are expected to deliver at least $50 billion in revenues by fiscal 2015. We believe that IBM’s strong product pipeline, expansion into emerging markets and strategic acquisitions will help it to achieve this target going forward.
We also believe that a strong patent portfolio and accretive acquisitions in the field of business analytics and other growth initiatives will provide IBM a competitive edge over its peers, including Oracle Corp. (ORCL), Hewlett-Packard Co. (HPQ), Microsoft Corp (MSFT) and EMC Corp (EMC).
We have a long-term Neutral recommendation on IBM and are optimistic about its strong fundamentals and robust growth prospects going forward. Currently, IBM has a Zacks #3 Rank, which translates into a short-term Hold rating.Read the Full Research Report on MSFT
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