By: Brendan Gilmartin
IBM Corp. (IBM) is slated to report 4Q 2013 earnings after the close of trading on Tuesday, January 21. Results are typically released at approximately 4:05 p.m. EST and will be followed with a conference call at 4:30 p.m. IBM is a member of the Dow Jones Industrial Average, with broad market influence and could impact on the index futures.
Outliers & Strategy
- IBM typically produces a Non-GAAP EPS value that is comparable to the Street consensus estimate. The figure is forecast to come in at $5.99 per share (Source: Yahoo! Finance) with a range of $5.73 - $6.09, up from $5.39 in the prior year.
- Revenues: The estimate is $28.25 bln (range is: $27.02 bln to $29.05 bln). In recent quarters, IBM has missed on the top line, triggering noticeable declines in both the equity and index futures.
- Gross Margin: This is a key measure for IBM. The current estimate is 53.1% (Source: Zacks Investment Research).
- Adjusted EPS Guidance (FY2014): Back in October, IBM said it remains confident it will achieve at least $20 operating EPS in 2015. Given that favorable longer-term view, the Street is betting that "Big Blue" will come through with solid results for 2014. The current Street estimate is $17.97. A figure of >$17.90 would therefore be seen as a positive signal.
- IBM could see meaningful volatility off the 4Q 2013 earnings release, with the options market currently pricing in a >3.0% move. Much of the attention will focus on top-line performance, particularly in the wake of the shortfall last quarter, sparking a drop in both the equity and broader market gauges. The Street will also hone in on the guidance for 2014 for clues as to whether the company is on track to meet its stated goal of earning $20.00 per share by 2015.
01/17: IBM announced a $1.2 billion effort to significantly grow its cloud footprint from 40 data centers worldwide in 15 countries and five continents globally.
01/13: 12/06: Cowen cut IBM from Outperform to Market Perform, according to a report on StreetInsider.com, and slashed the price target from $234 to $165, based on increased competition and slower growth in the services segment.
10/29: IBM authorized $15 billion in additional funds for use in the company's stock repurchase program.
IBM shares are up nearly 10% in the past month, piercing formidable resistance at $186, and recently eclipsed the 200-Day SMA near $190. Given the recent thrust higher, IBM needs to deliver a stellar release to sustain the momentum reflected by the MACD and Relative Strength Index (RSI). Should IBM deliver a solid report, look for a run toward the mid-September highs near $194, followed by the $200 mark. Conversely, previous resistance at $186 now becomes support, with further downside risk to $184, followed by the 50-Day SMA at $182. (Chart courtesy of StockCharts.com)
IBM have been rallying in recent weeks, mirroring the broader market advance, despite concerns over a softer IT refresh cycle, competition in cloud-computing, and speculation the tech giant faces slower growth in the mainframe business. But with the company buying back shares, creating value-added services, and trading at just 10.6x forward earnings, IBM could make a run back toward the $200 level so long as top-line growth and the outlook for 2014 top consensus views.
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