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IBM Stock Before Q3 Earnings Release: To Buy or Not to Buy?
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International Business Machines Corporation (IBM - Free Report) is scheduled to report third-quarter 2024 earnings on Oct. 23. The Zacks Consensus Estimate for sales and earnings is pegged at $15.15 billion and $2.25 per share, respectively. Earnings estimates for IBM have improved from $10.10 per share to $10.11 for 2024 and from $10.51 per share to $10.59 for 2025 over the past 30 days.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
IBM Estimate Trend
Image Source: Zacks Investment Research
Earnings Surprise History
The cloud and data platform delivered a four-quarter earnings surprise of 6.1%, on average, beating estimates on each occasion. In the last reported quarter, the company pulled off an earnings surprise of 12.5%.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not predict an earnings beat for IBM for the third quarter. 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
During the to-be-reported quarter, IBM augmented the generative artificial intelligence (AI) capabilities of its managed Threat Detection and Response Services with the launch of the IBM Consulting Cybersecurity Assistant. Designed to accelerate and improve the identification, investigation and response to critical security threats, the Cybersecurity Assistant will form an integral part of IBM's watsonx data and AI platform along with IBM Consulting Advantage. This, in turn, is expected to empower IBM consultants to respond more proactively and precisely to critical cyber threats with consistency, repeatability, quality and agility.
IBM collaborated with the United States Tennis Association to introduce advanced generative AI features for the US Open tournament. The collaboration aims to offer comprehensive, informative coverage to ensure a more engaging experience for millions of global tennis fans. These are likely to have generated incremental revenues in the Consulting segment.
The Zacks Consensus Estimate for revenues from the Consulting segment is pegged at $5.22 billion, while our model projects revenues of $5.19 billion.
During the reported quarter, IBM collaborated with Microsoft Corporation (MSFT - Free Report) to strengthen cybersecurity operations. This collaboration represents a significant step in the tech sector as the two companies leverage their respective strengths in cloud computing and AI technologies.
IBM also completed the twin acquisitions of StreamSets and webMethods to augment its AI platform and automation capabilities. Complementing IBM DataStage and Databand platform with a hybrid and multi-cloud approach, the buyouts will offer an integrated product for clients to facilitate seamless applications and services. This, in turn, will enable clients to effectively manage data quality within a distributed data landscape with real-time data streaming for a faster response and informed decision-making process. These are likely to have translated into incremental revenues in the Software segment.
The Zacks Consensus Estimate for revenues from the Software segment is pegged at $6.41 billion, while our model projects revenues of $6.48 billion.
However, despite solid hybrid cloud and AI traction, IBM faces stiff competition from Amazon Web Services and Microsoft’s Azure. The company’s ongoing, heavily time-consuming business model transition to the cloud is a challenging task. Weakness in its traditional business and foreign exchange volatility remain significant concerns.
Price Performance
Over the past year, IBM has gained 66.4% compared with the industry’s growth of 54.5%. It has also outperformed its peers like Microsoft and Oracle Corporation (ORCL - Free Report) over this period.
One-Year Price Performance
Image Source: Zacks Investment Research
Key Valuation Metric
From a valuation standpoint, IBM appears to be trading at a premium relative to the industry and is trading well above its mean. Going by the price/earnings ratio, the company shares currently trade at 22.23 forward earnings, higher than 22.16 for the industry and the stock’s mean of 12.87.
Image Source: Zacks Investment Research
Investment Considerations
IBM aims to benefit from the increasing propensity of business enterprises to undertake a cloud-agnostic and interoperable approach to secure multi-cloud management with a diligent focus on hybrid cloud and generative AI solutions. With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment and quantum computing, there is a radical expansion in the number of cloud workloads that enterprises are currently managing. This has resulted in heterogeneous, dynamic and complex infrastructure strategies, which has led to a healthy demand trend.
However, IBM’s frequent acquisitions have escalated integration risks. Buyouts have negatively impacted the company’s balance sheet in the form of high levels of goodwill and net intangible assets. IBM’s margins might have been strained by limited cost-cutting opportunities and stiff competitive pressures, likely delaying key product launches.
End Note
With a Zacks Rank #3, IBM appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. It is also trading at premium valuation metrics and investors could wait for a better entry point to cash in on its long-term fundamentals. Consequently, it might not be prudent to bet on the stock at the moment.
However, a single quarter’s results are not so important for long-term stakeholders and investors already owning the stock could stay put. IBM expects its growth to be driven primarily by analytics, cloud computing and security services. A better business mix, improving operating leverage through productivity gains and increased investments in growth opportunities will likely be conducive to growth. IBM is poised to benefit from strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments. With improving earnings estimates, the stock is witnessing a positive investor perception. These, in turn, offer some enticing reasons for remaining invested in the stock over a long-term horizon.
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IBM Stock Before Q3 Earnings Release: To Buy or Not to Buy?
International Business Machines Corporation (IBM - Free Report) is scheduled to report third-quarter 2024 earnings on Oct. 23. The Zacks Consensus Estimate for sales and earnings is pegged at $15.15 billion and $2.25 per share, respectively. Earnings estimates for IBM have improved from $10.10 per share to $10.11 for 2024 and from $10.51 per share to $10.59 for 2025 over the past 30 days.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
IBM Estimate Trend
Image Source: Zacks Investment Research
Earnings Surprise History
The cloud and data platform delivered a four-quarter earnings surprise of 6.1%, on average, beating estimates on each occasion. In the last reported quarter, the company pulled off an earnings surprise of 12.5%.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not predict an earnings beat for IBM for the third quarter. 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
IBM currently has an ESP of 0.00% with a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Shaping Upcoming Results
During the to-be-reported quarter, IBM augmented the generative artificial intelligence (AI) capabilities of its managed Threat Detection and Response Services with the launch of the IBM Consulting Cybersecurity Assistant. Designed to accelerate and improve the identification, investigation and response to critical security threats, the Cybersecurity Assistant will form an integral part of IBM's watsonx data and AI platform along with IBM Consulting Advantage. This, in turn, is expected to empower IBM consultants to respond more proactively and precisely to critical cyber threats with consistency, repeatability, quality and agility.
IBM collaborated with the United States Tennis Association to introduce advanced generative AI features for the US Open tournament. The collaboration aims to offer comprehensive, informative coverage to ensure a more engaging experience for millions of global tennis fans. These are likely to have generated incremental revenues in the Consulting segment.
The Zacks Consensus Estimate for revenues from the Consulting segment is pegged at $5.22 billion, while our model projects revenues of $5.19 billion.
During the reported quarter, IBM collaborated with Microsoft Corporation (MSFT - Free Report) to strengthen cybersecurity operations. This collaboration represents a significant step in the tech sector as the two companies leverage their respective strengths in cloud computing and AI technologies.
IBM also completed the twin acquisitions of StreamSets and webMethods to augment its AI platform and automation capabilities. Complementing IBM DataStage and Databand platform with a hybrid and multi-cloud approach, the buyouts will offer an integrated product for clients to facilitate seamless applications and services. This, in turn, will enable clients to effectively manage data quality within a distributed data landscape with real-time data streaming for a faster response and informed decision-making process. These are likely to have translated into incremental revenues in the Software segment.
The Zacks Consensus Estimate for revenues from the Software segment is pegged at $6.41 billion, while our model projects revenues of $6.48 billion.
However, despite solid hybrid cloud and AI traction, IBM faces stiff competition from Amazon Web Services and Microsoft’s Azure. The company’s ongoing, heavily time-consuming business model transition to the cloud is a challenging task. Weakness in its traditional business and foreign exchange volatility remain significant concerns.
Price Performance
Over the past year, IBM has gained 66.4% compared with the industry’s growth of 54.5%. It has also outperformed its peers like Microsoft and Oracle Corporation (ORCL - Free Report) over this period.
One-Year Price Performance
Image Source: Zacks Investment Research
Key Valuation Metric
From a valuation standpoint, IBM appears to be trading at a premium relative to the industry and is trading well above its mean. Going by the price/earnings ratio, the company shares currently trade at 22.23 forward earnings, higher than 22.16 for the industry and the stock’s mean of 12.87.
Image Source: Zacks Investment Research
Investment Considerations
IBM aims to benefit from the increasing propensity of business enterprises to undertake a cloud-agnostic and interoperable approach to secure multi-cloud management with a diligent focus on hybrid cloud and generative AI solutions. With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment and quantum computing, there is a radical expansion in the number of cloud workloads that enterprises are currently managing. This has resulted in heterogeneous, dynamic and complex infrastructure strategies, which has led to a healthy demand trend.
However, IBM’s frequent acquisitions have escalated integration risks. Buyouts have negatively impacted the company’s balance sheet in the form of high levels of goodwill and net intangible assets. IBM’s margins might have been strained by limited cost-cutting opportunities and stiff competitive pressures, likely delaying key product launches.
End Note
With a Zacks Rank #3, IBM appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. It is also trading at premium valuation metrics and investors could wait for a better entry point to cash in on its long-term fundamentals. Consequently, it might not be prudent to bet on the stock at the moment.
However, a single quarter’s results are not so important for long-term stakeholders and investors already owning the stock could stay put. IBM expects its growth to be driven primarily by analytics, cloud computing and security services. A better business mix, improving operating leverage through productivity gains and increased investments in growth opportunities will likely be conducive to growth. IBM is poised to benefit from strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments. With improving earnings estimates, the stock is witnessing a positive investor perception. These, in turn, offer some enticing reasons for remaining invested in the stock over a long-term horizon.