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Can Higher Business Services Revenues Buoy 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 Global Business Services segment due to significant traction from the consulting businesses.

Factors at Play

The Global Business Services segment provides consulting, global process services and application management, among others, that offer value and innovation to clients by leveraging industry, technology and business strategy and process know-how.

During the quarter, IBM entered into a five-year agreement with Honda Motor to manage and run the automaker's finance and procurement operations across Europe. Per the terms of the agreement, IBM will provide integrated end-to-end services and enable the standardization and simplification of processes, bringing cost savings, higher productivity, quality and improved service levels to Honda’s suppliers and customers.

IBM also inked an agreement with Ireland-based bank AIB to accelerate its ongoing digital transformation. The company will provide a next-generation IBM z15 compute platform and an extensive technology portfolio for the digitalization process. IBM and Raytheon Technologies collaborated to develop advanced AI, cryptographic and quantum solutions for the aerospace, defense and intelligence industries.

In the fourth quarter, IBM introduced the Environmental Intelligence Suite – an environmental intelligence software that leverages AI to help organizations prepare and respond to weather and climate risks that may disrupt business and reduce the complexity of regulatory compliance and reporting. The offering will allow organizations to spend fewer resources curating complex data and analyzing it for insights and taking action to improve their operations. These efforts are likely to have driven incremental revenues in the Global Business Services 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, suggesting 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. 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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