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IBM Corp. (IBM - Analyst Report) is all set to report its third quarter results on October 16, 2012, after the markets close. IBM has posted an average earnings surprise of 3.04% over the trailing four quarters. We don’t expect a major change in the earnings trend pattern for the current quarter.

Prior Quarter Recap

IBM reported a mixed second quarter (reported July 18, 2012), with bottom line up in double-digits for the 20th time in the last 22 quarters. However, revenue failed to meet the consensus mark and also declined on a year-over-year basis for the first time in the last four quarters. Despite the decline, IBM nudged up its annual earnings guidance by a dime.

For further details please see IBM Reports Mixed 2Q, Outlook Up.

Estimate Revision Trend

In the last 30 days, out of the 21 analysts covering the stock, 2 analysts revised their estimates downward. However, the Zacks Consensus Estimate for the third quarter 2012 remained at $3.61 per share, indicating that analyst revisions were mostly fine tuning in nature.

Despite the ongoing macro-economic concerns and unfavorable foreign exchange rates, analysts expect IBM to report a decent quarter on the back of robust signings and higher recurring revenues. Moreover, the strong demand for business analytics and smarter planet is expected to positively impact the quarterly results. For the third quarter, the Zacks Consensus revenue estimate is pegged at $25.43 billion.

Conclusion

We believe that IBM remains well positioned for long-term growth based on its four key growth initiatives: smarter planet, growth markets, business analytics and cloud computing, which are expected to deliver at least $50 billion in revenues by fiscal 2015. We believe that IBM’s strong product pipeline, expansion into emerging markets and continuous acquisitions will help it to achieve this target going forward.

We also believe that a strong patent portfolio and accretive acquisitions will provide IBM a competitive edge over other prominent vendors, including Oracle Corp. (ORCL - Analyst Report), Hewlett-Packard Co. (HPQ - Analyst Report), Microsoft Corp (MSFT - Analyst Report) and EMC Corp (EMC - Analyst Report).

However, modestly slower IT growth, primarily due to volatile macroeconomic conditions; a high level of unemployment; continuing European debt crisis and unfavorable foreign exchange fluctuations are expected to negatively impact the forthcoming quarters.

We have a long-term Neutral recommendation on IBM and are optimistic about its strong fundamentals and robust growth prospects going forward. Currently, IBM has a Zacks #3 Rank, which translates into a short-term Hold rating.

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