IBM Looks Oversold Ahead Of 2Q Results; Watch The FY2012 Outlook

| About: International Business (IBM)

By: Brendan Gilmartin

IBM Corp. (IBM) is slated to report 2Q 2012 earnings after the close of trading Wednesday, July 18. Results are typically released at approximately 4:05 p.m. EST and will be followed with a conference call at 4:30 p.m. EST. 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.

Outliers & Strategy

  • IBM typically produces an adjusted value for EPS that is comparable to the Street consensus estimate. Adjusted EPS is forecast to come in at $3.42 per share (Source: Yahoo! Finance) with a range of $3.31 - $3.51.
  • The revenue estimate is $26.31 billionn (range is: $25.99 billion to $26.70 billion).
  • Gross Margin: This is a key measure for IBM. A miss could be a catalyst to sell the shares. Forecasts are for 44.7%.
  • Adjusted EPS Guidance (FY2012): Back in April, IBM raised its outlook for operating (non-GAAP) diluted earnings per share to at least $15.00 from at least $14.85. 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 dropping more than 12% from the 52-week high of $209.82 in early April, IBM shares are now trading at just 11.1x forward earnings, a discount to the S&P 500 (13.5x) with a dividend yield of 1.84%.

Recent News

  • 07/17: Sterne Agee reiterated a Buy rating and a $230 price target on IBM, according to a post on The firm expects IBM to report in-line 2Q revenue, slightly better than expected EPS, and reiterate its FY2012 guidance.
  • 07/11: UBS initiated coverage on IBM with a Neutral rating and a price target of $205, according to The firm pointed out IBM's strong strategy and leadership position, but suggested the shares may be fairly priced at these levels.
  • 07/11: Stifel Nicolaus cut its price target on IBM from $230 to $221, according to The report cited Forex headwinds and the weaker macroeconomic backdrop.
  • 06/08: Patricia Murphy, IBM Vice President, Investor Relations, reiterated the 2015 roadmap, calling for operating EPS of >$20/share and the return of more than $50 billion to shareholders through its repurchase plan.

Technical Review

IBM shares are off more than 12% from the 52-week high near $210, en route to the lowest level YTD. The waning momentum is also evidenced by the faster 20-Day SMA crossing below the 200-Day. Should earnings and guidance disappoint, look for support near the $180-level. But the recent sell-off may be limited with the Relative Strength Index (RSI) bouncing off the oversold 30-level. On a reversal, look for initial resistance at $187.50, coinciding with the 50-Week SMA.

(Chart courtesy of


IBM shares came under heavy pressure during the 2Q period amid concerns over the macroeconomic backdrop and currency headwinds, contributing to the recently cautious sell-side sentiment. But with the shares registering technically oversold readings and trading at just 11.1x forward earnings, along with a strong management team and solid strategy, a buyback plan, and reiteration of an upbeat longer-term view just last month, IBM could be due for a bounce on flat to slightly higher earnings.

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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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