By Brendan Gilmartin
IBM (IBM) is slated to report Q1 2012 earnings after the close of trading on Tuesday, April 17. Results are typically released at approximately 4:05 p.m. ET and will be followed with by conference call at 4:30 p.m. IBM is a member of the Dow Jones Industrial Average, a company with broad market influence that could have a direct impact on the index futures when it delivers quarterly results. With the shares hitting all-time highs earlier this month, expectations are quite high ahead of the numbers.
Outliers and Strategy
Adjusted/Non-GAAP Earnings Per Share is forecast to come in at $2.65 (Source: Yahoo Finance) with a range of $2.46-$2.73. Given the recent run-up, look for earnings above $2.70 in order to sustain the recent advance.
Revenue: The estimate is $24.77 billion; the range is $24.46 billion to $25.09 billion.
Gross Margin: This is a key measure for IBM. A miss could be a catalyst to sell the shares.
Earnings Per Share Guidance (FY): Look for updated guidance for FY 2012. The estimate is $14.93.
Keep an eye on Accenture (ACN) as a potential sympathy play off the IBM numbers.
Despite retreating from all-time highs near $210, IBM is trading at 15.7x earnings, above the five-year average of 12.9x, suggesting plenty of room on the downside in the event of a miss on earnings. Last quarter, a marginal miss on revenue ($29.49 billion vs. $29.71 billion estimate) initially sent IBM shares lower in after-hours trading.
04/12: Goldman Sachs maintained a Buy rating and a $223 price target on IBM, according to StreetInsider.com. The firm reportedly expects IBM to deliver solid Q1 results with upside to EPS, revenue, and guidance.
04/04: Bank of America/Merrill Lynch downgraded IBM from Buy to Neutral, according to Benzinga.com, citing limited EPS upside at current levels. The firm maintained a $215 price target.
04/03: JPMorgan Chase raised the price target on IBM from $210 to $225, following the run-up in the shares to all-time highs, according to a post on StreetInsider.com. The firm maintained an Overweight rating.
03/01: IBM was named the leading server vendor in the Q4 2011 period with 33.7% revenue market share, according to Gartner.
IBM recently touched an all-time high of $210.69, but has since broken the uptrend going back to mid-January. After breaking below the 20-Day SMA (near $206) for the first time since the previous earnings release back in January, the shares look to be building support near $202.50. Below that level is support at the 50-day SMA near $200, with further downside risk to $195. Resistance is at $207.50, followed by the aforementioned high of $210.69. (Chart courtesy of StockCharts.com.)
IBM is coming off a recent all-time high of $210.69 in advance of the Q1 2012 earnings release. While valuation is a bit stretched on a relative basis, underlying expectations call for IBM to deliver a solid quarter, thanks to cloud-computing, data center expansion, and services growth. While IBM tends to historically top analysts' EPS estimates, the company has shown a tendency to fall short on the top-line. The full-year guidance is also a closely watched measure. Should the company deliver solid bottom-line results for the Q1 period, look for a possible upward adjustment to the FY2012 outlook. Anything less may be seen as a disappointment considering the fairly upbeat sentiment and recent run-up in the shares.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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