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Analyst Blog

International Business Machines Corporation (IBM - Analyst Report) is set to report third-quarter 2016 results on Oct 17, after the market closes. Last quarter, the company posted a positive earnings surprise of 2.08%. Over the past four quarters, the company has posted an average positive earnings surprise of 4.13%.

Let’s see how things are shaping up for this announcement.

Factors at Play

IBM delivered decent second-quarter results, surpassing the Zacks Consensus Estimate on both the top- and the bottom line. However, on a year-over-year basis, the metrics declined.

IBM is having a tough time, given the ongoing and heavily time consuming business model transition to cloud. Further, sluggish IT spending particularly on on-premises and data center hardware and foreign exchange volatility remain concerns. Also, intensifying competition in the industry is a major headwind.

Nevertheless, IBM's strategic growth initiatives, including its Big Data & business analytics, cloud computing, mobile and social business are expected to drive growth.

In addition, the company’s policy of making strategic acquisitions (it has acquired over 150 companies since 2000) will lead to incremental revenues, strengthening its technology leadership and resulting in a more favorable mix of business.

Strong cash flow generation is also expected to provide the financial flexibility required for strategic investments in a changing business environment.

Earnings Whispers

Our proven model does not conclusively show that IBM will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $3.21. Hence, the difference is 0.00%.

Zacks Rank: IBM has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

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Stocks to Consider

You could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

Asure Software, Inc. (ASUR - Snapshot Report) , with an Earnings ESP of +14.29% and Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Intel Corporation (INTC - Analyst Report) , with an Earnings ESP of +1.39% and Zacks Rank #1

NetApp, Inc. (NTAP - Analyst Report) , with an Earnings ESP of +5.26% and a Zacks Rank #1

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