Earnings Preview: IBM

Jul.12.12 | About: International Business (IBM)

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. The company operates in five segments: Global Technology Services, Global Business Services, Software, Systems and Technology, and Global Financing.

It is scheduled to report its Q2 2012 results on July 18, 2012, after the bell. In this article I will recap the historical results of the company, latest EPS estimates vs. surprises, latest developments and closest competitors' development.

Technical Overview


The stock has a market capitalization of $214.85B and is currently trading at $186.26 with a 52 week range of $157.13 - $210.69. The stock performance year to date: 2.12%. It is currently trading below 20, 50 and 200 SMA, and has recently broken south out of a technical triangle.

Key Metrics

  • Trailing P/E: 13.89
  • Forward P/E: 11.22
  • Price/Sales: 2.01
  • Price/Book: 10.38
  • PEG Ratio: 1.26
  • Total Debt: 32.05B
  • Annual dividend yield: 1.70%
  • Return on Equity: 73.73%
  • Return on Assets: 12.07%

Recent EPS Actuals vs. Estimates

The company has met or beaten analysts' estimates in the last four quarters. In the last quarter it reported $2.78 EPS, beating analyst estimates of $2.65.

The consensus EPS estimate is $3.43 based on 21 analysts' estimates, up from $3.09 a year ago. Revenue estimates are $26.36B, just below $26.67B a year ago. The median target price by analysts for the stock is $215.00.

Average recommendation: Overweight

Source: Marketwatch

Analyst Upgrades and Downgrades

  • On April 18, 2012, Stifel Nicolaus reiterated Buy rating for the company.
  • On April 18, 2012, RBC Capital Mkts reiterated Sector Perform rating for the company.
  • On April 18, 2012, Barclays reiterated Equal Weight rating for the company.
  • On April 17, 2012, the company was downgraded from Outperform to Neutral at Macquarie.
  • On March 29, 2012, Argus reiterated Buy rating for the company.
  • On March 23, 2012, UBS reiterated Neutral rating for the company.
  • On February 6, 2012, Sterne Agee initiated Buy rating for the company.

Latest Developments

  • On July 3, 2012, Sandvik AB announced that it has entered into a five year strategic agreement, to a value of 2 billion SEK, with International Business Machines Corp and will outsource parts of the IT infrastructure services.
  • On June 27, 2012, International Business Machines Corp and Veolia Transdev announced that together they are developing a smarter mobility solution designed to help cities alleviate road congestion, optimize transportation infrastructures and improve the urban traveler experience.
  • On June 27, 2012, International Business Machines Corp and Lawrence Livermore National Laboratory (LLNL) announced that they are broadening their nearly 20-year collaboration in high performance computing (HPC) by joining forces to work with industrial partners to help boost their competitiveness in the global economy.
  • On June 13, 2012, International Business Machines Corp announced that it has completed acquisition of Tealeaf Technology, Inc. Terms of the transaction were not disclosed.
  • On June 7, 2012, International Business Machines Corp announced that Sree Charan Souharda Cooperative Bank has selected IBM SmartCloud to help it meet growing demand, add new customer services and to centralize mission-critical operations such as real-time transaction processing across its five branches in Bangalore.
  • On May 29, 2012, International Business Machines Corp announced it has completed the acquisition of Vivisimo, provider of federated discovery and navigation software that helps organizations access and analyze big data.
  • On May 23, 2012, International Business Machines Corp announced it has completed the acquisition of Varicent Software Incorporated, provider of analytics software for compensation and sales performance management.
  • On May 21, 2012, International Business Machines Corp announced that The U.S. General Services Administration has awarded a contract to the Company to develop and install advanced smart building technology in 50 of the federal government's highest energy-consuming buildings.
  • On May 7, 2012, International Business Machines Corp And Banco de Credito del Peru announced a five-year agreement for IT outsourcing services. The agreement will enable BCP to optimize its operational expenses, relying on IBM to provide IT infrastructure management services, including support, operation and maintenance of the bank's mainframe, midrange and storage platforms.
  • On May 3, 2012, International Business Machines Corp and the Department of Science and Technology (DOST) of the Republic of the Philippines today signed a Memorandum of Understanding (MOU) to work together to establish the first Philippine Systems & Technology R&D Laboratory to help spur economic growth.
  • On May 2, 2012, International Business Machines Corp announced a definitive agreement to acquire Tealeaf Technology, Inc., a provider of customer experience analytics software that helps organizations to gain intelligence and react more swiftly to consumer trends in digitally transformed marketplace.
  • On April 27, 2012, International Business Machines Corp announced that The Sunan Kalijaga Islamic State University (UIN) Yogyakarta has adopted IBM's smarter computing approach to IT to improve the quality of the education process through highly collaborative learning services.
  • On April 25, 2012, International Business Machines Corp announced a definitive agreement to acquire Vivisimo, a provider of federated discovery and navigation software that helps organizations access and analyze big data across the enterprise.
  • On April 25, 2012, International Business Machines Corp and Bauman Moscow State Technical University announced the opening of a Smarter Cities Development and Education Center in Russia - the first of its kind in the region.
  • On April 24, 2012, International Business Machines Corp announced that its Board of Directors declared a regular quarterly cash dividend of $0.85 per common share, payable June 9, 2012 to stockholders of record May 10, 2012.
  • On April 17, 2012, International Business Machines Corp announced that for fiscal 2012, it raised its expectations for GAAP diluted earnings per share (EPS) to at least $14.27 from at least $14.16 and operating (non-GAAP) EPS to at least $15.00 from at least $14.85. The 2012 operating (non-GAAP) earnings expectations exclude $0.73 per share of charges for amortization of purchased intangible assets, other acquisition-related charges, and retirement-related charges driven by changes to plan assets and liabilities primarily related to market performance.
  • On April 17, 2012, Reuters reported that a unit of Toshiba Corporation is in talks to buy International Business Machines Corp's point-of-sale (POS) terminal business, which includes cash registers.
  • On April 17, 2012, Toshiba Tec Corporation announced that it has decided to buy the retail store solution business for USD 850 million from International Business Machines Corporation.
  • On April 13, 2012, International Business Machines Corp announced a definitive agreement to acquire Varicent Software Incorporated, a provider of analytics software for compensation and sales performance management.
  • On April 9, 2012, International Business Machines Corp announced it has teamed with Zapadoslovenska energetika, a. s. (ZSE), distributor and supplier of electricity in Slovakia, on a smart energy 'feasibility' study that will help prepare the capital city Bratislava for electric vehicles (EVs).
  • On April 4, 2012, International Business Machines announced a strategic agreement that includes: IBM's investment in SIX Automacao; the creation at SIX Automacao of a joint center for the development of technology solutions and investments in R&D focused primarily on natural resources and infrastructure; and the outsourcing to IBM of IT operations of EBX Group.
  • On April 4, 2012, International Business Machines Corp announced that the National Bank of Ukraine has adopted IBM's smarter computing approach to IT to help simplify the management and protection of billions of financial records across the Ukraine.
  • On March 30, 2012, International Business Machines Corp announced a partnership to build the Blue Gene supercomputer in Texas. Rice also announced a related collaboration agreement with the University of Sao Paulo (USP) in Brazil to initiate the shared administration and use of the Blue Gene supercomputer, which allows both institutions to share the benefits of the new computing resource.
  • On March 29, 2012, International Business Machines Corp announced that the Soon Chun Hyang University Hospital has embraced the Company's smarter computing approach to IT to build the country's first integrated hospital infrastructure.
  • On March 27, 2012, International Business Machines Corp and its Business Partner Telvent announced that they have been selected by Hydro One, the distributor of electricity in Ontario (Canada), for a new smart grid project that will help transform the province's electrical system.
  • On March 27, 2012, Rutgers announced that it has formally launched a high-performance computing (HPC) center at the university focused on the application of Big Data analytics in life sciences, finance, and other industries.
  • On March 26, 2012, MarketLine (a Datamonitor Company), Company News reported that AXA Insurance has selected International Business Machines Corp 's smarter computing model for a four-year systems integration project in Romania designed to streamline business processes, reduce information technology costs, and uncover new business opportunities.
  • On March 23, 2012, International Business Machines Corp announced that it has opened a new branch office in Ludhiana, Punjab as part of the company's continued geographic expansion across India.
  • On March 22, 2012, Reuters reported that Facebook Inc has acquired hundreds of patents from International Business Machines Corp as the social networking company attempts to bolster its intellectual property portfolio in the wake of a lawsuit filed by Yahoo.
  • On March 22, 2012, Memorial Sloan-Kettering Cancer Center (MSKCC) and International Business Machines Corp announced that they have agreed to collaborate on the development of a powerful tool built upon IBM Watson in order to provide medical professionals with improved access to current and comprehensive cancer data and practices.
  • On March 14, 2012, Theflyonthewall.com reported that International Business Machines Corp's smarter computing model has been selected by AXA Insurance for a four-year systems integration project in Romania designed to streamline business processes, reduce information technology costs, and uncover new business opportunities.
  • On March 5, 2012, Citigroup announced it has entered into an agreement with International Business Machines Corp to explore possible uses for IBM Watson. Under the agreement, Citi will examine the use of deep content analysis and evidence based learning capabilities found in IBM Watson to help advance customer interactions, and improve and simplify the banking experience.

Competitors

International Business Machines Corporation operates in Diversified Computer Systems industry. The company could be compared to Accenture plc (ACN), Computer Sciences Corporation (CSC), Hewlett-Packard Company (HPQ), Infosys Ltd. (INFY), and Microsoft Corporation (MSFT). Below is the table comparison of the most important ratios between these companies and the industry.

Below is the chart comparison with the stock price changes as a percentage for the selected companies for the last one year period.

IBM ChartClick to enlarge

IBM data by YCharts

Competitors' Latest Development

  • On July 9, 2012, Hewlett Packard Co's HP Enterprise Services announced that the Delaware Division of Medicaid & Medical Assistance (DMMA) has signed a $50 million agreement for HP to continue providing Medicaid fiscal-agent services for three years.
  • On July 5, 2012, Accenture PLC announced a management consulting contract with the Ministry of Agriculture, Forestry and Fisheries for a project to improve food supply capabilities in natural disasters and emergencies.
  • On July 3, 2012, Computer Sciences Corp announced that it is one of 54 companies awarded an information technology services and "as a service" solutions contract by the National Institutes of Health Information Technology Acquisition and Assessment Center ((NITAAC)).
  • On June 28, 2012, Accenture PLC announced that for the fourth quarter of 2012, it expects net revenues to be in the range of $6.60 billion to $6.85 billion. For fiscal 2012, it expects revenue growth to be in the range of 10% to 12% in local currency and updated and narrowed its range for diluted EPS to $3.80 to $3.84 from its previously guided range of $3.82 to $3.90. The Company reported revenues of $25.5 billion in fiscal 2011.
  • On June 27, 2012, Accenture PLC announced that it has been selected by the State of California, following a competitive bid process, to implement a statewide health insurance exchange, the California Healthcare Enrollment, Eligibility and Retention System (CalHEERS).
  • On June 27, 2012, Reuters reported that Hewlett Packard Co told a judge on June 26, 2012, that Oracle Corporation should be ordered to make its software available on HP's Itanium-based servers for as long as HP sells them.
  • On June 27, 2012, Hewlett Packard Co announced that Lifescript, a publisher dedicated to educating women about family health issues, has selected HP 3PAR Storage, a core component of the HP Converged Infrastructure strategy, to support increased storage capacity demands and analytic-based decision making to improve the customer experience.
  • On June 26, 2012, Hewlett Packard Co announced that Verizon, Vodafone and Mobile TeleSystems OJSC (MTS) have signed new technology agreements for the supply and delivery of industry standard servers.
  • On June 25, 2012, Guardia Civil, the police force in Spain, has selected Accenture PLC to oversee the integration of 12 additional information sources, into the operations management system and police investigations system used by the force.
  • On June 23, 2012, Reuters reported that Hewlett Packard Co may cut as many as 1,000 jobs in Germany as part of planned European-wide redundancies, WirtschaftsWoche reported.
  • On June 18, 2012, Hewlett Packard Co's HP Enterprise Services announced that Procter & Gamble (P&G) has signed a multiyear agreement for HP to help provide an Always On operating environment that enables the consumer-goods to keep products moving on time, from production all the way to shoppers' carts in the retail store.
  • On June 14, 2012, Infosys Ltd announced a strategic business alliance with Resonant Software, a company with an underwriting and new business solution for the life insurance industry.
  • On June 14, 2012, Infosys Ltd announced that it has signed a Memorandum of Understanding with The State of Israel, to establish and enhance cooperation in industrial research and development.
  • On June 13, 2012, Accenture PLC announced that it has been selected by Wing Lung Bank, a wholly owned subsidiary of China Merchants Bank, to plan and oversee the implementation of its new core banking technology system as part of the bank's broad business transformation program.
  • On June 7, 2012, Accenture PLC announced the renewal of its contract, through March 31, 2013, with the Japan Pension Service to continue to provide management support to improve the accuracy of pension records.
  • On June 7, 2012, Computer Sciences Corp announced that The U.S. Department of Transportation's (DOT) Federal Aviation Administration (FAA) awarded CSC a contract to implement a cloud software-as-a-service solution for its Enterprise Messaging System.
  • On June 6, 2012, The National Institutes of Health (NIH) has selected Accenture Plc's Accenture Federal Services as one of the prime contractors to provide technology services under a 10 year, $20 billion indefinite-delivery, indefinite-quantity (IDIQ) contract.
  • On June 5, 2012, The Government of India Department of Electronics and Information Technology (DeitY) announced that it has selected Accenture to review investment proposals from global technology providers and investors interested in building semiconductor fabrication units (fabs) in India.
  • On June 4, 2012, Accenture PLC announced that it has signed a five-year application development and maintenance services agreement with Nordea, the financial services group in the Nordic and Baltic Sea region.
  • On June 4, 2012, Reuters reported according to a lawyer for Hewlett Packard Co said in court that Oracle Corp violated a clear contract with Hewlett Packard Co when it decided it would no longer make new versions of its database software compatible with HP's Itanium-based servers.
  • On May 30, 2012, Hewlett Packard Co's HP Enterprise Services announced the Oklahoma State and Education Employees Group Insurance Board (OSEEGIB) has signed a contract for HP to continue providing claims processing and other services.
  • On May 29, 2012, Hewlett Packard Co announced that it has amicably resolved patent litigation with Brazil-based Multilaser Industrial Ltda. relating to HP's integrated printhead inkjet cartridges.
  • On May 24, 2012, Computer Sciences Corp announced that it is one of six prime contractors awarded a Traffic Management Infrastructure Systems program contract by the U.S. Department of Transportation's John A. Volpe National Transportation Systems Center.
  • On May 23, 2012, Hewlett Packard Co outlined plans for a multi-year productivity initiative designed to simplify business processes, advance innovation and deliver better results for customers, employees and shareholders.
  • On May 23, 2012, Hewlett Packard Co announced that for the third quarter of 2012, it estimates non-GAAP diluted EPS to be in the range of $0.94 to $0.97 and GAAP diluted EPS to be in the range of $0.00 to $0.03. Third quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.94 per share, related primarily to the amortization and impairment of purchased intangible assets, restructuring charges, and acquisition-related charges.
  • On May 21, 2012, Computer Sciences Corp announced that the Board of Directors has declared a regular quarterly dividend of $0.20 per share on the company's Common Stock.
  • On May 18, 2012, Hewlett Packard Co announced that the Board of Directors have declared a regular cash dividend of $0.132 per share on the Company's common stock. The dividend, the third in the Company's fiscal year 2012, is payable on July 5, 2012, to stockholders of record as of the close of business on June 13, 2012.
  • On May 17, 2012, Reuters reported that Hewlett Packard Co, is considering cutting its workforce by 8% to 10% or a minimum of 25,000 jobs, sources familiar with the matter told Reuters.
  • On May 15, 2012, Reuters reported that Hewlett Packard Co on Monday lost a battle with the U.S. Internal Revenue Service for more than $190 million in tax refunds tied to a Dutch tax shelter designed by the derivatives arm of American International Group.
  • On May 14, 2012, Computer Sciences Corp announced the appointment of Paul Saleh to vice president and Chief Financial Officer, effective May 23, 2012. Saleh's joins CSC on May 23, 2012 and becomes the Company's Chief Financial Officer upon the retirement of Mancuso who is expected to retire upon the filing of the Company's Annual Report on Form 10-K for the fiscal year ended March 30, 2012.
  • On May 7, 2012, Computer Sciences Corp announced that the U.S. Naval Air Warfare Center Training Systems Division (NAWCTSD) has awarded CSC a Multiple Award Contract (MAC).
  • On May 3, 2012, Reuters reported that an Oracle Corporation attorney ruled out a settlement with Hewlett-Packard Co (NYSE:HPQ) in a bitter lawsuit over the Itanium microprocessor, a day after the judge refused to resolve the case for either side before trial.
  • On April 23, 2012, Hewlett Packard Co announced that women's clothing retailer Chico's has chosen HP Performance Optimized Data Center (POD) technology as part of an HP Converged Infrastructure to increase productivity by providing employees at more than 600 boutiques nationwide with access to the Company's virtual private cloud.
  • On April 19, 2012, Reuters reported that Hewlett Packard Co agreed to build a printer factory in the southwestern Chinese city of Chongqing, China Daily reported. HP has no plans to reduce its workforce in China after the firm said last month it will merge its printer and PC businesses.
  • On April 16, 2012, Computer Sciences Corp. announced that U.S. Navy has awarded the Company, a task order to provide program management support to the Strategic and Theater Sealift Program Office.
  • On April 10, 2012, Accenture Plc announced that it has completed its acquisition of Neo Metrics Analytics S.L. a consulting firm specializing in optimization and predictive analytics based in Madrid, Spain.
  • On April 3, 2012, Accenture Plc announced that it will team with SAS Institute to implement the SAS Risk Management for Insurance solution group-wide at Folksam, one of Sweden's insurers, to help comply with the Solvency II directive's legal reporting requirements.
  • On April 3, 2012, Computer Sciences Corp. announced that the U.S. Navy Naval Air Systems Command (NAVAIR) has awarded Computer Sciences an Unmanned Aerial Systems (UAS) contract to deliver streaming Video as a Service.
  • On April 3, 2012, Computer Sciences Corp announced that it has signed a three year business process services contract with AMERISAFE, Inc. a specialty insurer located in DeRidder, La. Under the agreement, CSC will provide business process outsourcing (BPO) services to manage and automate legal expenditures for AMERISAFE using Legal Bill Analyzer, a component of CSC's Legal Solutions Suite, strengthening transparency in legal matter planning and communication with outside counsel.
  • On April 3, 2012, Hewlett Packard Company announced that it has been selected by the U.S. Army to provide the Department of Defense and other federal agencies with enterprise cloud computing services under the Army Private Cloud contract.
  • On March 29, 2012, Accenture Plc announced that it has signed a contract with Guinness Anchor Berhad (GAB) to license and implement its Accenture CAS software platform. Financial terms of the agreement were not disclosed.
  • On March 27, 2012, BM&FBovespa (Bovespa) announced that, on April 4, 2012, the Brazilian Depositary Receipts (BDRs) Level I of Hewlett Packard Company will start being traded on Bovespa's over-the-counter (OTC) market, quoted in BRL per unit and with standard trading lot of 100 BDRs, under the ticker HPQB11B.
  • On March 27, 2012, Reuters reported that Hewlett Packard Company and Oracle Corporation on Monday both sought pretrial wins in their bitter legal battle over whether Oracle can end support for Itanium, a heavy-duty microprocessor.
  • On March 22, 2012, Accenture Plc announced that for the third quarter of 2012, it expects net revenues to be in the range of $7.05-$7.25 billion. For fiscal 2012, the Company raised its revenue to be in the range of 10% to 12% in local currency and EPS to be in the range of $3.76-$3.84. The Company reported revenues of $25.5 billion in fiscal 2011.
  • On March 22, 2012, Hewlett Packard Company announced that Turkcell is using HP cloud solutions to generate new revenue through "as a service" offerings to businesses. Turkcell is using HP CloudSystem Service Provider to provide its business customers with infrastructure as a service (IaaS) and communications as a service (CAAS).
  • On March 22, 2012, Hewlett Packard Company's HP Enterprise Services announced an $800 million, six-year services agreement with Sabre Holdings to enhance Sabre's technology infrastructure by implementing HP's networking and flexible storage solutions.
  • On March 21, 2012, Faruqi & Faruqi, LLP, announced that it is investigating potential wrongdoing at Computer Sciences Corporation. The investigation focuses on whether certain officers and directors of CSC breached their fiduciary duties by causing the Company to file false and misleading financial statements.
  • On March 21, 2012, Hewlett Packard Company announced an organizational realignment to improve performance and drive profitable growth across the entire HP portfolio. As part of this realignment, HP's Imaging and Printing Group (IPG) and its Personal Systems Group (PSG) are joining forces to create the Printing and Personal Systems Group.
  • On March 21, 2012, Agence France Presse reported that the Romanian unit of Hewlett Packard Co is under investigation for possible abuse of its dominant market position, the Romanian anti-trust watchdog said.
  • On March 20, 2012, Reuters reported that Hewlett Packard Company's CEO Meg Whitman plans to combine the computing giant's PC and printing divisions in a major internal overhaul intended to spur combined sales of hardware to customers, two sources familiar with the move told Reuters.
  • On March 19, 2012, Computer Sciences Corp. announced that the Maryland Department of Health and Mental Hygiene (MD DHMH) awarded the Company, a contract to replace the state's Medicaid Management Information System (MMIS) and provide fiscal agent services for selected DHMH programs.
  • On March 19, 2012, Hewlett Packard Company announced that cloud services provider CenterBeam has selected HP Converged Infrastructure to support the increased capacity demands of its cloud service offerings and joined the HP CloudAgile Program.
  • On March 7, 2012, Accenture Plc announced that its claims management software application, Accenture Claim Components, has been selected by Farm Bureau Financial Services to serve as the insurer`s core claims processing system for its personal and commercial lines.
  • On March 7, 2012, Mediafax News Brief Service reported that Hewlett Packard Co's Hewlett Packard Romania will provide Romania's National Health Insurance House with the information technology solution needed to introduce a national electronic prescription system.
  • On March 6, 2012, Hewlett Packard Company announced that the U.S. Department of Veterans Affairs (NASDAQ:VA) has selected HP Enterprise Services to continue as a prime contractor for the Compensation and Pension Record Interchange (CAPRI) support program to help deliver healthcare to veterans.
  • On March 5, 2012, Hewlett-Packard Company announced that Swisscom AG, Switzerland's telecoms provider, has launched a managed service for hosted unified communications and collaboration (UC&C) based on an HP private cloud infrastructure.

Sources: Yahoo Finance, Google Finance, Marketwatch, Finviz, Reuters.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.