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By: Brendan Gilmartin
IBM Corp. (IBM) is slated to report 3Q 2012 earnings after the close of trading Tuesday, October 16. 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 have direct impact on the index futures when it delivers quarterly results.

  • Adjusted/Non-GAAP Earnings Per Share is forecast to come in at $3.61 per share (Source: Yahoo Finance) with a range of $3.51- $3.72, up from $3.28 in the prior year.
  • Revenues: The estimate is $25.37 bln (range is: $24.97 bln to $25.88 bln).
  • Gross Margin: This is a key measure for IBM. A miss could be a catalyst to sell the shares. Forecasts are for 47.9%.
  • Adjusted Earnings Per Share Guidance (Fiull Year): Back in July, IBM raised its outlook for operating (non-GAAP) diluted earnings per share to at least $15.10 from at least $15.00. Any changes to this upwardly revised guidance are likely to have direct consequences for the share price.
  • Keep an eye on Accenture (NYSE:ACN) as a potential sympathy play off the IBM numbers.
  • After touching a 52-week high of $211.79 on October 5, IBM shares are now trading at just 12.4x forward earnings, a discount to the S&P 500 (14.2x) with a dividend yield of 1.65%.


Recent News

  • 10/01: Deutsche Bank reiterated its Buy rating and raised its price target on IBM from $225 to $240, according to a post on Beninzga.com. The firm also raised its FY2013 EPS estimate from $16.60 to $17.00. The firm cited a refresh cycle in hardware growth and a pickup in services and software sales.
  • 09/04: Barclays upgraded IBM from Equal-Weight to Overweight and raised the price target from $208 to $240, according to a post on Forbes. The upgrade is based on several factors, including a new mainframe cycle, execution, and benefit from the analytics strategy. The firm also raised the 2013 EPS estimate from $15.15 to $15.18.
  • 08/24: JP Morgan reiterated an Overweight rating on IBM, according to a post on Benzinga.com, based on increased upside form the software business. The firm noted the benefit of software margins and the potential for increased share buyback activity and higher dividends.


Technical Review

IBM shares are just off the recent 52-week high of $211.79 (10/5) and sitting right at support near $205 - a level going back to last May. Should earnings disappoint, $205 is a key near-term level, with downside risk to the 50-Day SMA near $202, followed by $197.50. Resistance is at the recent highs near $210. (Chart courtesy of StockCharts.com)

Summary

IBM shares are within earshot of a 52-week high, based on strength in the software and services segments, a hardware refresh cycle, solid execution, an improved macroeconomic backdrop in North America and increased payouts to shareholders through dividends and share buybacks. Against this backdrop, the bar is set fairly high, leaving IBM vulnerable to any missteps. Therefore, earnings, revenues and guidance for the balance of the year need to top estimates in order to sustain the gains. Anything less could result in a pullback below the $200 per share level.

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Source: IBM Slipping From 52-Week High Ahead Of 3Q 2012 Earnings