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Should You Avoid IBM ETFs Ahead of Q1 Earnings?

Sweta Killa

International Business Machines IBM is scheduled to report first-quarter 2019 results on Apr 16 after market close. Being the world’s largest computer-services provider, it is worth taking a look at its fundamentals ahead of results.

IBM has been on an uptrend so far this year, gaining 26.9%, and has outperformed the industry’s average growth of 26% by a thin margin. The positive trend might continue if IBM beats earnings estimates.

Inside Our Methodology

IBM has a Zacks Rank #4 (Sell) and an Earnings ESP of +0.19%. According to our surprise prediction methodology, the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP may lead to an earnings beat. Zacks Rank #4 or 5 (Strong Sell) rated stocks are best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The stock has seen no earnings estimate revision for the first quarter over the past 30 days. However, it has risen by a penny over the past 90 days. The earnings track is respectable, with an average earnings surprise of 1.39% for the last four quarters. The stock boasts a solid Value Score of B and belongs to a top-ranked Zacks industry (top 18%).

However, the Zacks Consensus Estimate indicates modest earnings decline of 9.39% from the year-ago quarter. IBM projects year-over-year revenue decline of 2.20% (read: Beat Q1 Earnings Woes With These Sector ETFs & Stocks).

The Zacks Consensus Estimate for average target price is $151.73 with 43% of the analysts having a Strong Buy or a Buy rating and 50% having a Hold rating ahead of earnings. This represents nearly 5% upside from the current price.

What to Watch?

Though revenues are expected to decline in the first quarter, IBM expects strategic areas like cloud computing, security software, data analytics and artificial intelligence to drive revenue growth this year. Investors should recall that IBM posted its first annual revenue growth in 2018 since 2011, reflecting that the shift toward faster-growing segments under chief executive officer, Ginni Rometty, is paying off. This ongoing growth in strategic areas will help IBM return to organic growth this year.

For 2019, the world’s largest computer-services provider expects full-year earnings of “at least $13.90” a share.

ETFs in Focus

Given this, ETFs having the highest allocation to this this tech giant will be in focus. These funds could be potential movers if IBM surprises the market:

First Trust NASDAQ Technology Dividend Index Fund TDIV

This fund provides exposure to dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $997.3 million in its asset base while trading in volume of around 121,000 shares per day. It charges 50 bps in annual fees and holds about 93 securities in its basket. Of these firms, IBM takes the fourth spot, making up roughly 7.9% of the assets (read: Be Secure With 5 ETFs This Week That Packs a Global Punch).

Invesco Dow Jones Industrial Average Dividend ETF DJD

This ETF offers exposure to high-yielding companies included in the Dow Jones Industrial Average by their 12-month dividend yield over the prior 12 months. It holds 29 stocks in its basket, with IBM occupying the top position with 6.3% allocation. DJD has been able to manage assets worth $73.8 million, while trading in volume of 74,000 shares a day on average. It charges 7 bps in annual fees and has a Zacks ETF Rank #3 (Hold) (read: 4 Reasons to Bet on Dow Jones ETFs in Q2).

WBI Power Factor High Dividend ETF WBIY

This ETF offers exposure to quality stocks that have the highest dividend yield with a deep value bias and multi-factor fundamental analysis. It follows the Solactive Power Factor High Dividend Index, holding 51 stocks in the basket with IBM taking the second spot at 5.4%. The product has amassed $124.1 million in its asset base and trades in lower volume of 45,000 shares a day on average. It charges 70 bps in annual fees.

Schwab U.S. Dividend Equity ETF SCHD

With AUM of $9.3 billion, this product offers exposure to 111 high dividend yielding U.S. companies that have a record of consistent dividend payments supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. IBM occupies the seventh position in the basket with 4.4% of the portfolio. The fund trades in solid volume of 1.3 million shares a day and is one of the low cost choices in the dividend space, charging 6 bps in fees per year. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Top-Ranked Dividend ETFs Crushing the Market).

Tortoise Cloud Infrastructure Fund TCLD

This ETF offers exposure to companies that have the potential to benefit from the expected growing investments, rapid adoption and fast paced innovation of the cloud industry by tracking the Tortoise Global Cloud Infrastructure Index. It holds 45 securities in its basket with IBM taking the eighth spot at 4.42% share. TCLD has been able to gather $2.8 million in its asset base since its debut in January and sees lower volume of nearly 3,000 shares. It charges 40 bps in annual fees (read: Cloud Computing ETF Space Gets Crowded).

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