Q1 Earnings Analysis: IBM And Intel

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 |  Includes: IBM, INTC
by: Matt Schilling

I've taken an in-depth look at both IBM and Intel and made a very strong case as to why and how they'll surpass earnings estimates for the first quarter. Both companies should surpass estimates by an average of 8%, in my opinion.

Intel (INTC) - One of the leading Dow 30 components, Intel Corporation is poised to have a very satisfying quarter. Analysts are calling for a mean EPS estimate of $0.50/share on revenue of 12.82B for the quarter ending March 31st. Intel currently trades at a P/E ratio of 11.7 and yields 3.0%, which for any investor rates the company as very cheap.

Analysis: The $0.50/share benchmark will easily be surpassed this quarter by continued growth in the chip sector both domestically and internationally, and the direct blow it plans on dealing Apple, Inc. (AAPL). Intel plans on launching its own version of a thin and lightweight notebook which will directly compete with Apple Inc.'s AIR product line.

Determined to strengthen their global footprint, Intel's presence in such places as Latin and South America demonstrate how strong Intel not only is as a brand, but how important continued growth in these regions actually is. For example, Intel's "StudyBook" will begin to target various emerging markets:

The StudyBook will target emerging markets like Brazil and China and will also include Intel's Medfield platform and dual-operating systems (I).

Presence in both Brazil and China will play a key role in Intel's international growth and possibly take effect as early as the quarter ending March 31st.

Domestically speaking, Intel's newest line of microprocessors, dubbed "Romley," are having a direct effect on the company. According to Stifel Nicolaus:

We came away from the event convinced Romley could be Intel's most successful server/storage/networking processor yet. Importantly, we expect Intel's next server-class CPU based on the same architecture though on the 22nm process could surpass Romley in performance and revenue (II).

Final Word: I wouldn't be surprised to see INTC beat estimates by $0.04 - $0.08/share on revenues of 13.20B or higher. Given the success in both its primary and ancillary businesses Intel demonstrates all the qualities of a true market leader. I'd be long on the stock in the next 12-24 months, and a dividend increase of 14% - 20% in the next year would be well within reach.

International Business Machines (IBM) - As the bellwether technology stock in the Dow 30, IBM continues prove time and time again why they are so successful, and this quarter shouldn't be any different. Analysts are calling for a mean EPS of $2.65/share on revenue of 24.77B for the quarter ending March 31st. IBM currently trades at a P/E ratio of 15.7 and yields 1.5%, which makes IBM very attractive to most long-term and conservative dividend investors.

Analysis: Continued growth in the data analytics arena should play out very nicely for IBM and pay dividends with the most recent quarter. They've invested $14 billion in acquisitions since 2005 to help secure a foothold on the big data market that could be valued at $150 billion by 2015.

IBM continues to demonstrate increased global growth especially in places such as the Ukraine, Poland and Brazil. The National Bank of Ukraine has formed a partnership with IBM in an effort to harness possible security threats and increase its data storage capabilities.

In Poland, IBM has increased in presence by added to new facilities and creating jobs in both regions. Traditionally seen as mining and industrial towns, Katowice and Wroclaw have been developing themselves as 'smarter' cities since the IT boom of 2009. IBM plans on creating jobs, data centers and analytic programs to assist in the development of such industries as supermarkets, pharmacies and education.

During the first quarter, IBM made a very interesting acquisition in the ever emerging market of Brazil. IBM acquired a 20% stake in SIX Automacao that was designed at establishing a research & development data center focused on boosting EBX's position in both Latin and South America.

According to a report published by Zacks Equity Research:

IBM will set up a research & development (R&D) center in collaboration with SIX Automacao, which will focus on developing technology solutions aimed at boosting EBX's presence in the natural resources and infrastructure sector in Latin America. EBX expects to invest approximately $50.0 billion in Brazil over the next 10 years, which presents significant growth potential for IBM in our view. To focus on its core business, EBX outsourced its IT operations to IBM, which will add approximately $1 billion to the company's cash coffers over the next ten years.

Final Word: IBM should handily beat estimates by between $0.03 and $0.06/share on revenues of 25.4B or higher. As a continued dividend darling, I'd continue to stay long IBM. Even with the share price trading above $200/share, IBM in very cheap and will continue to stay that way as earnings continue to surpass estimates over the next few quarters.

Disclosure: I am long INTC, IBM.