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After the closing bell on Tuesday, International Business Machines (IBM - Free Report) dampened investors’ mood with second-quarter 2017 results. While the world’s largest computer-services provider continued its streak of earnings beat for the eleventh consecutive quarter, it once again missed on revenues. This suggests that the company’s turnaround might take longer than expected (read: Forget IBM, Buy These Thematic Tech ETFs Instead).
Earnings per share came in at $2.97, well above our estimated $2.73 and up 1% from the year-ago earnings. Revenues dipped 4.7% year over year to $19.29 billion and fell shy of the Zacks Consensus Estimate of $19.49 billion. This marks the 21st consecutive quarter of revenue decline for the company — the longest streak in its history.
The company is on track with its transition from low-margin business lines, such as cash registers, low-end servers, and semiconductors, to strategic growth areas including cloud computing, security software, data analytics and artificial intelligence. While the strategic business is paying off, it failed to make up for the slowdown in hardware and legacy business. Notably, revenues from strategic business climbed 5% year over year and accounted for 45% of the total revenue, up from 42.8% in the first quarter.
For 2017, the company reaffirmed its earnings per share guidance of at least $13.80 as CEO Ginni Rometty remained upbeat about IBM's continued growth in cloud and its investments in other strategic imperatives. IBM is expected to benefit from the launch of its new mainframe server and new service contracts, which are largely cloud-based, in the second half.
Following the revenue miss, shares of IBM tumbled 3% in both aftermarket hours yesterday and pre-market trading today at the time of writing. The dip could be an attractive entry point for investors given that IBM has a Zacks Rank #3 (Hold) and an impressive VGM Style Score of A. However, it belongs to an industry that has a Zacks Rank in the bottom 14% (read: Is the Tech Rout Overstated? Buy 3 Stocks & ETFs on the Dip).
ETFs to Watch
Given this, ETFs with the highest allocation to this tech giant will be in focus. Investors should closely monitor the movement in these funds and tap the opportunity whenever it arises or avoid if the stock drags them down in the coming days (see: all the Technology ETFs here):
First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report)
This fund provides exposure to dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $724 million in its asset base while trading in volume of around 81,000 shares per day. It charges 50 bps in annual fees and holds about 89 securities in its basket. Of these firms, IBM takes the second spot, making up roughly 8.1% of the assets. In terms of industrial exposure, the fund allocates more than one-fourth portion in semiconductor and semiconductor equipment, followed by software (15.6%), diversified telecom services (14.3%), technology hardware, storage & peripherals (12.5%) and communication equipment (10.3%).
SPDR Dow Jones Industrial Average ETF (DIA - Free Report)
This fund follows the Dow Jones Industrial Average, providing exposure to 31 blue-chip U.S. stocks. IBM occupies the seventh position in the basket with 4.8% share. The ETF is well spread out across a number of sectors with industrials, information technology, financials, consumer discretionary and health care taking the top five spots with a double-digit exposure each. DIA is one of the largest and most popular ETFs in the space with AUM of $16.3 billion and average daily volume of around 3.1 million shares. It charges 17 bps in annual fees from investors and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Here's Why Dow Jones ETFs are Moving North).
This fund tracks the Solactive Power Factor High Dividend Index, which measures the performance of U.S.-listed stocks that exhibit high dividend yield and strong fundamentals. Holding 51 stocks in its basket, IBM takes the ninth spot at 4.5% share. From a sector look, the fund is skewed toward consumer discretionary sector at 31% while information technology, financials and telecommunication round off the next spots with a double-digit exposure each. It has managed $36.4 million in AUM since its debut six months ago and trades in a thin volume of around 11,000 shares per day on average. Its expense ratio is 0.67%.
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IBM Q2 Revenues Disappoint Again: ETFs to Watch
After the closing bell on Tuesday, International Business Machines (IBM - Free Report) dampened investors’ mood with second-quarter 2017 results. While the world’s largest computer-services provider continued its streak of earnings beat for the eleventh consecutive quarter, it once again missed on revenues. This suggests that the company’s turnaround might take longer than expected (read: Forget IBM, Buy These Thematic Tech ETFs Instead).
Earnings per share came in at $2.97, well above our estimated $2.73 and up 1% from the year-ago earnings. Revenues dipped 4.7% year over year to $19.29 billion and fell shy of the Zacks Consensus Estimate of $19.49 billion. This marks the 21st consecutive quarter of revenue decline for the company — the longest streak in its history.
The company is on track with its transition from low-margin business lines, such as cash registers, low-end servers, and semiconductors, to strategic growth areas including cloud computing, security software, data analytics and artificial intelligence. While the strategic business is paying off, it failed to make up for the slowdown in hardware and legacy business. Notably, revenues from strategic business climbed 5% year over year and accounted for 45% of the total revenue, up from 42.8% in the first quarter.
For 2017, the company reaffirmed its earnings per share guidance of at least $13.80 as CEO Ginni Rometty remained upbeat about IBM's continued growth in cloud and its investments in other strategic imperatives. IBM is expected to benefit from the launch of its new mainframe server and new service contracts, which are largely cloud-based, in the second half.
Following the revenue miss, shares of IBM tumbled 3% in both aftermarket hours yesterday and pre-market trading today at the time of writing. The dip could be an attractive entry point for investors given that IBM has a Zacks Rank #3 (Hold) and an impressive VGM Style Score of A. However, it belongs to an industry that has a Zacks Rank in the bottom 14% (read: Is the Tech Rout Overstated? Buy 3 Stocks & ETFs on the Dip).
ETFs to Watch
Given this, ETFs with the highest allocation to this tech giant will be in focus. Investors should closely monitor the movement in these funds and tap the opportunity whenever it arises or avoid if the stock drags them down in the coming days (see: all the Technology ETFs here):
First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report)
This fund provides exposure to dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $724 million in its asset base while trading in volume of around 81,000 shares per day. It charges 50 bps in annual fees and holds about 89 securities in its basket. Of these firms, IBM takes the second spot, making up roughly 8.1% of the assets. In terms of industrial exposure, the fund allocates more than one-fourth portion in semiconductor and semiconductor equipment, followed by software (15.6%), diversified telecom services (14.3%), technology hardware, storage & peripherals (12.5%) and communication equipment (10.3%).
SPDR Dow Jones Industrial Average ETF (DIA - Free Report)
This fund follows the Dow Jones Industrial Average, providing exposure to 31 blue-chip U.S. stocks. IBM occupies the seventh position in the basket with 4.8% share. The ETF is well spread out across a number of sectors with industrials, information technology, financials, consumer discretionary and health care taking the top five spots with a double-digit exposure each. DIA is one of the largest and most popular ETFs in the space with AUM of $16.3 billion and average daily volume of around 3.1 million shares. It charges 17 bps in annual fees from investors and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Here's Why Dow Jones ETFs are Moving North).
WBI Power Factor High Yield Dividend (WBIY - Free Report)
This fund tracks the Solactive Power Factor High Dividend Index, which measures the performance of U.S.-listed stocks that exhibit high dividend yield and strong fundamentals. Holding 51 stocks in its basket, IBM takes the ninth spot at 4.5% share. From a sector look, the fund is skewed toward consumer discretionary sector at 31% while information technology, financials and telecommunication round off the next spots with a double-digit exposure each. It has managed $36.4 million in AUM since its debut six months ago and trades in a thin volume of around 11,000 shares per day on average. Its expense ratio is 0.67%.
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 >>