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Can Improved Cloud & Cognitive Software Drive IBM Q4 Earnings?

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International Business Machines Corporation (IBM - Free Report) is scheduled to report fourth-quarter 2021 results on Jan 24, after the closing bell. In the fourth quarter, the company is likely to have recorded year-over-year higher revenues from the Cloud & Cognitive Software segment due to increased adoption of its cloud services.

Factors at Play

The Cloud & Cognitive Software segment includes cloud and data platform, Cognitive application and transaction processing along with Watson Platform, Watson Health and Watson IoT offerings.

During the fourth quarter, IBM reinforced its alliance with Deloitte by launching a new offering —DAPPER — an AI-enabled managed analytics solution that helps organizations accelerate the adoption of hybrid cloud and AI across the enterprise. Built upon IBM's modern hybrid cloud architecture, DAPPER enables organizations to scale up operations and enable smart reporting.

IBM also collaborated with Apptio, Inc. to help clients improve hybrid cloud technology decision-making and drive the adoption of Red Hat OpenShift and IBM's open hybrid cloud approach. The collaboration will combine data-driven insights from Apptio to help clients make informed migration decisions and capitalize on the capabilities of Red Hat OpenShift to run and manage applications in the computing environment that best suits their business goals.

In the fourth quarter, IBM announced a collaboration with Acclivis Technologies to deploy Cloud Satellite services across Asia to help enterprises accelerate digital innovation while maintaining data sovereignty and achieving regulatory compliance. The collaboration will see IBM leveraging the regional data center coverage of Acclivis in Hong Kong, Singapore, Malaysia, Indonesia and Thailand to host and manage data.

The company enabled Virgin Megastore KSA, a major entertainment retailer in the Kingdom of Saudi Arabia, to migrate its SAP ERP application workloads to IBM Cloud. This is likely to have improved the operational efficiencies and provided a platform for new digital services with a secured and open hybrid cloud approach from IBM.

During the quarter, Watson Health integrated IBM Digital Health Pass solutions with Healthy Return to share COVID-19 test results and vaccination data electronically. This is likely to have enabled healthcare providers, labs and pharmacies to provide users digital confirmation of the records and vaccination. All these initiatives are likely to have driven the top-line growth in the Cloud & Cognitive Software segment.

Overall Expectations

The Zacks Consensus Estimate for revenues from Global Business Services is pegged at $4,628 million, indicating an improvement from $4,170 million reported in the year-ago quarter.

The Zacks Consensus Estimate for total revenues of the company stands at $17,568 million, indicating a decline from $20,367 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at $3.39 per share, indicating a healthy improvement from $2.07 reported in the year-earlier quarter.

Earnings Whispers

Our proven model does not predict an earnings beat for IBM this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -11.02%, with the former pegged at $3.13 and the latter at $3.51. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: IBM currently has a Zacks Rank #3.

Stocks to Consider

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

Qualcomm Incorporated (QCOM - Free Report) is set to release quarterly numbers on Feb 2. It has an Earnings ESP of +0.50% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Cirrus Logic, Inc. (CRUS - Free Report) is +1.48% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Jan 31.

The Earnings ESP for Meta Platforms, Inc. (FB - Free Report) is +0.43% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 2.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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