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IBM Earnings Preview from Shayne Heffernan

|Includes: International Business Machines Corporation (IBM)

IBM Corp. (NYSE: IBM), the world’s biggest computer services provider, will release financial results for the fourth quarter after the bell on Tuesday the 19th of January, 2009. IBMs earnings will impact the general direction of markets for Wednesday the 20th.

Analysts concensus is that the company will report earnings of $3.47 per share on revenue of $26.96 billion. In the same quarter last year the company reported earnings of $1.49 per share on revenue of $27.01 billion. Ebeling Heffernan estimate earnings over $3.50 on revenuse that will exceed $27 billion.

International Business Machines Corporation develops and manufactures information technology products and services worldwide. Its Global Technology Services segment offers IT infrastructure and business process services, such as strategic outsourcing, integrated technology, business transformation outsourcing, and maintenance. IBM is used as a benchmark by many traders to judge the health of the technology market. IBM has beaten estimates 13 out of the last 14 quarters and looks like a strong buy ahead of Tuesdays release.

IBMs CEO Samuel Palmisano attributed the strong performance to “the company’s long-term strategic shift to higher-value businesses and improved revenue trends in our business and share gains in software and hardware.”

“We are optimistic about 2009 as we again raise our full-year expectations and we remain well ahead of pace for our 2010 roadmap of $10 to $11 per share,” Palmisano said in a statement. This would put IBM in a position to beat the estimates on Tuesday the 19th.

While it’s clear that enterprise IT spending is still in the early stages of recovery, IBM has been one of the star performers of the Dow of late. In 2009, IBM stock posted gains in 11 out of 12 months. IBM’s strong stock performance has been driven by eight consecutive quarters of delivering quarterly results that have exceeded Wall Street’s expectations. Investors should be encouraged that IBM’s management team is openly optimistic that these strong earnings performances will continue this quarter and into 2010.

IBM was the third-best performing stock in the Dow Jones Industrial average in 2009 and we expect them to be one of the top performers again in 2010. Wall Street is only expecting a very marginal 3% increase in revenues next year. However, we believe the rebound in corporate tech spending in 2010 could be much stronger than is currently anticipated. We would not be surprised to see IBM increase their 2010 earnings guidance following strong fourth quarter results.

Acquisitions are a key part of IBM’s growth strategy. Last month, the company announced the signing of a definitive agreement to acquire Lombardi, a privately held software company, in its attempt to meet the rising demand for business process management solutions. IBM said that Lombardi’s department-level business approach complements its existing strengths in enterprise-wide process management software and adds a new dimension for customers looking for integrated solutions. Late in November, IBM announced that it has acquired Guardium, a privately held company, which helps clients safeguard data, monitor database activity and reduce operational costs by automating regulatory compliance tasks.

The company has consistently rewarded investors with share buybacks and dividends. Late in October, IBM approved $5 billion in share buybacks, reflecting the company’s strong cash flows. The latest authorization was in addition to about $4.2 billion remaining at the end of September from a prior authorization. The Armonk, New York-based company also said it expects to request additional share buyback authorization at the April board meeting. Additionally, during the fourth quarter, the technology firm declared a regular quarterly cash dividend of $0.55 per share, payable on December 10 to stockholders of record on November 10.

Shayne Heffernan

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Disclosure: Long IBM