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International Business Machines (IBM - Free Report) is set to release its fourth-quarter fiscal 2016 results on January 19 after market close. Being the world’s largest computer-services provider, it is worth taking a look at the company’s fundamentals ahead of its results.
IBM has shown a nice rebound from the multi-year low price, surging 20% so far this year. The upside is unlikely to continue as our proven model shows that the company might not surprise this quarter after beating our earnings estimates for eight consecutive quarters. Additionally, the positive earnings revision trend, which is generally a precursor to an earnings beat, is absent for the stock.
Inside Our Methodology
The stock saw no earnings estimate revision over the past seven days or 30 days. Though IBM’s earnings surprise history is robust with a positive earnings surprise of 4.67% on average in the past four quarters, the stock has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00% (read: Bartosiak: Trading IBM (IBM - Free Report) Earnings with Options).
Betting on stocks that have a combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) usually leads to profits in an investor’s portfolio. Our research shows that the chance of a positive earnings surprise is as high as 70% for the stocks with this combination. However, a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Additionally, the company is expected to report revenues of $21.62 billion, down 2% from the year-ago quarter. The slowdown in traditional business like hardware, software and services sales will continue to weigh on the top line.
Further, the stock has an ugly industry Rank in the bottom 36% with an unimpressive Growth and Momentum Style Score of C and F, respectively, though a Value Style Score of B looks good. According to the analysts polled by Zacks, IBM has an average target price of $159.44 with 47.1% giving a Hold rating ahead of the company’s earnings. This indicates a 5% downside to the current price of IBM.
What to Watch?
Investors will be keen to know whether the company will head into the revenue growth era as it broke its long streak of 17-quarters of revenue decline in the third quarter. If IBM reports an increase in revenues from the year-ago quarter, its shares will likely get a boost even if it misses on earnings. Additionally, IBM’s progress on its new strategic business lines like cloud computing, big data and mobile security will be closely watched (see: all the Technology ETFs here).
ETFs in Focus
Given that revenue is the most important driver for IBM in the upcoming report, some investors might want to take a look at ETFs having the largest allocation to the tech giant. While there are several ETFs in the space having large allocations to IBM, we have highlighted six funds that have IBM in their top 10 holdings:
First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report) — The fund has delivered 1.4% returns so far this year. IBM is the fourth firm making up for 8% of the assets.
SPDR Dow Jones Industrial Average ETF (DIA - Free Report) — The fund added 0.3% in the same time frame and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook. IBM occupies the third position and accounts for 5.8% share (read: What's In Store for Dow ETF in Q4 Earnings?).
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) — It added 0.2% and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. Here, IBM is the tenth firm accounting for 4.4% of assets.
PowerShares S&P 500 High Quality ETF (SPHQ - Free Report) — This product is up 1% and has a Zacks ETF Rank of 2 with a Medium risk outlook. IBM occupies the sixth position in the basket with 4.4% share.
iShares Dow Jones US Technology ETF (IYW - Free Report) — This fund is up 2.8% so far this year and has a Zacks ETF Rank of 2 with a Medium risk outlook. IBM is the eight firm accounting for 3.7% of the assets.
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Should You Avoid IBM ETFs Ahead of Q4 Earnings?
International Business Machines (IBM - Free Report) is set to release its fourth-quarter fiscal 2016 results on January 19 after market close. Being the world’s largest computer-services provider, it is worth taking a look at the company’s fundamentals ahead of its results.
IBM has shown a nice rebound from the multi-year low price, surging 20% so far this year. The upside is unlikely to continue as our proven model shows that the company might not surprise this quarter after beating our earnings estimates for eight consecutive quarters. Additionally, the positive earnings revision trend, which is generally a precursor to an earnings beat, is absent for the stock.
Inside Our Methodology
The stock saw no earnings estimate revision over the past seven days or 30 days. Though IBM’s earnings surprise history is robust with a positive earnings surprise of 4.67% on average in the past four quarters, the stock has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00% (read: Bartosiak: Trading IBM (IBM - Free Report) Earnings with Options).
Betting on stocks that have a combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) usually leads to profits in an investor’s portfolio. Our research shows that the chance of a positive earnings surprise is as high as 70% for the stocks with this combination. However, a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Additionally, the company is expected to report revenues of $21.62 billion, down 2% from the year-ago quarter. The slowdown in traditional business like hardware, software and services sales will continue to weigh on the top line.
Further, the stock has an ugly industry Rank in the bottom 36% with an unimpressive Growth and Momentum Style Score of C and F, respectively, though a Value Style Score of B looks good. According to the analysts polled by Zacks, IBM has an average target price of $159.44 with 47.1% giving a Hold rating ahead of the company’s earnings. This indicates a 5% downside to the current price of IBM.
What to Watch?
Investors will be keen to know whether the company will head into the revenue growth era as it broke its long streak of 17-quarters of revenue decline in the third quarter. If IBM reports an increase in revenues from the year-ago quarter, its shares will likely get a boost even if it misses on earnings. Additionally, IBM’s progress on its new strategic business lines like cloud computing, big data and mobile security will be closely watched (see: all the Technology ETFs here).
ETFs in Focus
Given that revenue is the most important driver for IBM in the upcoming report, some investors might want to take a look at ETFs having the largest allocation to the tech giant. While there are several ETFs in the space having large allocations to IBM, we have highlighted six funds that have IBM in their top 10 holdings:
First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report) — The fund has delivered 1.4% returns so far this year. IBM is the fourth firm making up for 8% of the assets.
SPDR Dow Jones Industrial Average ETF (DIA - Free Report) — The fund added 0.3% in the same time frame and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook. IBM occupies the third position and accounts for 5.8% share (read: What's In Store for Dow ETF in Q4 Earnings?).
Guggenheim Dow Jones Industrial Average Dividend ETF (DJD - Free Report) — This ETF also has a Zacks ETF Rank of 2 but lost 0.5%. IBM takes the fifth spot with 4.4% allocation (read: Be Part of Buffett's Success Story with These 5 ETFs).
First Trust Morningstar Dividend Leaders Index Fund (FDL - Free Report) — It added 0.2% and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. Here, IBM is the tenth firm accounting for 4.4% of assets.
PowerShares S&P 500 High Quality ETF (SPHQ - Free Report) — This product is up 1% and has a Zacks ETF Rank of 2 with a Medium risk outlook. IBM occupies the sixth position in the basket with 4.4% share.
iShares Dow Jones US Technology ETF (IYW - Free Report) — This fund is up 2.8% so far this year and has a Zacks ETF Rank of 2 with a Medium risk outlook. IBM is the eight firm accounting for 3.7% of the assets.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>