IBM (NYSE:IBM) is set to report FQ1 2014 earnings after the market closes on Wednesday, April 16th. BM is known for marching to the beat of its own drum. The company is currently going through 2 transformations which may take some time before bearing fruit. IBM is working on opening up their Watson supercomputer API for developers to build new apps on top of and the company also announced in January that it will spend $1.2 billion on 15 data centers to expand their cloud service offerings. This quarter both EPS and revenue are expected to be lower than last year. Wall Street expects IBM to report a 15% decline in EPS and a 1.6% decline in sales compared to FQ1 of last year. Here's what investors expect from Big Blue on Wednesday.(click to enlarge)
The current Wall Street consensus expectation is for IBM to report $2.54 EPS and $23.023B revenue, while the current Estimize.com consensus from 38 Buy Side and Independent contributing analysts is $2.60 EPS and $23.090B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting IBM to beat the Wall Street consensus on both the top and bottom line by a relatively small margin.
Over the past 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting IBM's EPS and revenue 4 times each. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small difference between the two groups' expectations.(click to enlarge)
The distribution of estimates published by analysts on the Estimize.com platform range from $2.49 to $2.75 EPS and from $22.067B to $24.000B in revenues. This quarter we're seeing a small distribution of EPS estimates on IBM and a wide range of revenue estimates.
The size of the distribution of EPS estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrower distribution of estimates signaling more agreement in the market, which could mean less volatility post earnings. (click to enlarge)
Over the past 4 months the Wall Street EPS consensus fell from $3.28 to $2.54, while the Estimize consensus declined from $3.11 to $2.60. Meanwhile, the Wall Street revenue consensus dropped from $23.451B to $23.023B while the Estimize forecast drifted lower from a high of $23.429B to $23.090B. Timeliness is correlated with accuracy and downward analyst revisions at the end of the quarter are often a bearish indicator.(click to enlarge)
The analyst with the highest estimate confidence rating this quarter is sana5000, who projects $2.57 EPS and $23.090B in revenue. sana5000 is ranked 58th overall among over 4,000 contributing analysts. Over the past 2 years, sana5000 has been more accurate than Wall Street in forecasting EPS and revenue 58% and 44% of the time respectively over 163 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, sana5000 is expecting IBM to report in-line with the Estimize community on revenue but come up a few cents short of the community's EPS consensus.
This quarter IBM is going through a major transition to focus on cloud services and analyst expectations have been set lower accordingly. But the Estimize community still expects IBM to beat the Wall Street consensus by 6c per share EPS and $67 million in revenue.