IBM Keeps 2009 Guidance

In a filing with the Securities and Exchange Commission yesterday, International Business Machines (IBM - Analyst Report) reiterated its fiscal 2009 profit outlook of at least $9.70 per share. Management also said that IBM was well on course to deliver earnings of $10 to $11 per share in 2010.

With significant operating leverage, the company expects to continue expanding margins, helped by about $3.5 billion of savings from cost-cutting initiatives in 2009.

Shares of the company rose in early trading hours to $118.18 after closing at $117.46 on Friday on the New York Stock Exchange.

IBM expects to release third-quarter results on Oct. 15. The Zacks Consensus Estimate is pegged at $2.38 a share for the quarter and $9.77 for the full year, exceeding the company’s guidance of $9.70. Zacks estimates assume approximately 13.6% earnings growth and 2.1% sales growth.

IBM is the leader in the Software, Services and Storage business. With a shift to higher-margin software and services, the company raised its 2009 profit objective during the second quarter earnings call from its original forecast of $9.20 due to strong margin performance.

IBM’s second-quarter results beat the Zacks Consensus. Having focused on expense management, the pro forma EPS rose to a record $2.32, up 17.8% from $1.97 in the prior-year quarter. The Zacks Consensus estimate was $2.03 per share.

The server giant competes against Hewlett-Packard (HPQ - Analyst Report), Sun Microsystems (JAVA) and Microsoft (MSFT - Analyst Report). We maintain our Outperform rating on the stock based on strong fundamentals, substantial free cash flow, strong Services businesses and earnings momentum.

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