IBM's Quarter Can Lead the Equity Market Recovery

[The following is excerpted from Bill Cara's Daily Report]

Wednesday evening (7pm ET) I focused on IBM as a Cara 100 company that pre-announced a solid quarter, which I believe will help lead the equity market recovery. I expect the stock to soar Thursday.

Here is a repeat of the IBM review:

IBM Announced Preliminary 2008 Third-Quarter EPS of $2.05; Reaffirms Full-Year 2008 EPS Outlook of at Least $8.75

-- Diluted earnings of $2.05 per share, up +22%

-- Net income of $2.8 billion, up +20%

-- Pre-tax income of $3.9 billion, up +19%

-- Revenue of $25.3 billion, up +5%

ARMONK, N.Y.--(BUSINESS WIRE)--xx--IBM (NYSE:IBM) today announced third-quarter 2008 diluted earnings of $2.05 per share from continuing operations, an increase of 22 percent, compared with diluted earnings of $1.68 per share in the third quarter of 2007. The company also reported net income of $2.8 billion, an increase of 20 percent. Revenue increased 5 percent, including 3 points of currency benefit, to $25.3 billion, compared with the third quarter of 2008.

IBM said it continues to expect full-year 2008 earnings per share of at least $8.75, or year-to-year growth of 22 percent.

The company's gross profit margin in the third quarter was 43.3 percent compared with 41.3 percent in the third quarter of 2007. Pre-tax income was $3.9 billion, an increase of 19 percent compared with the third quarter of 2007.

At the end of the third quarter, IBM's year-to-date free cash flow was approximately $6.4 billion and its cash balance was $9.8 billion.

"Our results demonstrate that the combination of a steady base of recurring revenue and profits, investments for growth in emerging markets, a range of products and services that deliver value to clients, and a strong and flexible financial foundation give IBM a competitive edge in good times and tough times," said Samuel J. Palmisano, IBM chairman, president and chief executive officer. "We remain confident in our full-year outlook."

From my perspective, this is an excellent report.

I believe these shares at $90.55 represent excellent value.

The Monthly-Weekly-Daily charts show RSI-7 at 29.2-14.8-13.8 and due for a significant rebound, and commencement of a new Bull.

Comments

[Stone Fox C...:]

If only good results were all it took to move a stock or the market we'd be much higher. As I type, IBM is up a laughable 1.5%. The market has completely lost touch with reality. Fear seems to rule the day. Any good results are immediately written off as a one off fluke that won't happen next Q.

2008 Oct 09 02:54 PM

[Smarty_Pants:]

Yes! If only one company can make good profits then it logically follows that all companies are a good buy.

It's a BEAR MARKET. Price levels will continue down until the evidence is overwhelmingly good. Well run, profitable companies are going to be the exception and a handful of those won't do much to stop the averages from dropping further.

2008 Oct 09 03:03 PM

[BxCapricorn:]

Judging by today's action, you, like almost every contributor to this website, are wrong.

2008 Oct 09 03:26 PM

[Ray Lopez:]

One swallow does not a summer make. Her name was Summer. There's also the chance that IBM is lying, or cooking the books. Not a big chance, but the fact they rushed out their earnings prematurely makes you wonder. I agree a wait and see approach is prudent.

2008 Oct 09 06:24 PM

[Jim Hawthorne:]

Bill!
I have always had the most profound respect for your opinions and analysis.
This time around, I feel that there was more opinion than analysis.
Last night, i dredged up a daily chart running from mid-May, 2002 through March 31, 2003.
The "false bottom" that formed in mid-July, 2002 bears a stunning similarity to the point we are at as of today, and then as now, there were lots of pundits that called that "false bottom" the real McCoy.
Bear market bottoms are NOT dates on a calendar!
Bear market bottoms are in fact a process that takes months of consolidation and re-building to complete.
We will have some typical "pop & drop" rallies that will be profitable for the flexible and nimble trader, but we are far from any long term "recovery", Bill.

2008 Oct 09 10:11 PM

[casey00001:]

Nobody can manipulate numbers like IBM. They pick a number and then back into it.

2008 Oct 10 10:29 AM