- With NYSE:IBM's Q2 EPS benefiting from a non-GAAP tax rate of 17.2% (down 280 bps Q/Q and 330 bps Y/Y), many firms are cutting their full-year EPS estimates on account of Big Blue's top-line pressures. However, no downgrades have arrived.
- Janney's Joseph Foresi (Neutral): "Strategic-Imperative revenue growing more than 30% y/y was impressive, but implies a worse than expected performance in the legacy business. Most segments were close to flat in either direction, and we see little prospect of overall y/y growth until 2016." Likewise, Deutsche's Sherri Scribner (Hold) continues to forecast "secular challenges related to the shift to the cloud to be a negative headwind for IBM and [expects] near-term growth to be difficult.”
- JPMorgan's Tien-tsin Huang (Neutral) is worried about services margins. "[Services] signings were up nicely; backlog was up 1% (first increase since end of 2013), as IBM encouragingly won 22 large deals. However, services pretax margins deteriorated 390 basis points year/year ... Given forex is essentially neutral to margin % on pretax basis, we attribute much of this margin deterioration to need for investments in Strategic Imperatives which should continue and hurt near term Services margins."
- Stifel's David Grossman (Buy) makes a bull case centered around low multiples, services backlog conversion, and a software business believed to be faring better than generally believed. "IBM is trading at 13 times 2015 free cash flow, which includes $0.80/share of forex-related headwinds and represents a 25% discount to the S&P earnings multiple. In our view, this stock offers attractive risk/reward given the various headwinds."
- On the CC (transcript), CFO Martin Schroeter stated IBM's mobile-related sales (benefiting from the Apple partnership?) quadrupled in 1H15, and that demand for scale-out systems is giving a lift to Power server sales (weak in recent years, but down only 1% in Q2). 25% and 16% Y/Y drops in Chinese and Brazilian revenue hurt BRIC revenue in Q2, and a fresh $200M "workforce rebalancing" charge was taken.
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Q2 results, details, SA IBM commentary