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What's In Store For IBM ETFs in Q3 Earnings?

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International Business Machines (IBM - Free Report) is scheduled to report third-quarter 2017 results on Oct 17 after market close. Being the world’s largest computer-services provider, it is worth taking a look at its fundamentals ahead of results.

The world’s largest computer-services provider has bucked the trend of a broad technology surge this year, having shed 11.4% so far and lagging the industry’s average growth of 18.8%. The downside seems limited as IBM is expected to beat our earnings estimate in spite of a negative earnings revision trend (read: 4 Bargain ETFs in a Pricey Market).

Inside Our Methodology

IBM has a Zacks Rank #3 (Hold) and an Earnings ESP of +0.71%, indicating chances of its beating estimates this quarter. According to our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP may lead to an earnings beat. A Zacks Rank #4 or 5 (Sell rated) is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The earnings track record is respectable, with an average earnings surprise of 3.86% for the last four quarters. However, the Q3 Zacks Consensus Estimate reflects modest earnings decline of 0.30% and revenue decline of 2.9% from the year-ago quarter. This is rather disappointing for the company. Additionally, the stock saw negative earnings estimate revision of nine cents over the past 90 days for the third quarter. Though IBM boasts a top Value Style Score of A, its Growth and Momentum Style Score of D and F, respectively, looks ugly.

According to the analysts compiled by Zacks, IBM has an average target price of $165.67 with 31% of the analysts having a Strong Buy or a Buy rating and 50% having a Hold rating ahead of earnings. This indicates a 12.7% upside to the current price of IBM (read: 4 Favorite Sectors of Q3 Earnings and Their ETFs & Stocks).

What to Watch?

Investors will be keen to watch whether strategic areas like cloud computing, security software, data analytics and artificial intelligence as well as the new wave of blockchain technology have the ability to reverse the 21st consecutive quarter of revenue decline for the company.

ETFs in Focus

Given this, ETFs having the highest allocation to this this tech giant will be in focus going into its earnings announcement. These funds could be potential movers if IBM surprises the market:

First Trust NASDAQ Technology Dividend Index Fund (TDIV - Free Report)

This fund provides exposure to dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $732.1 million in its asset base while trading in volume of around 59,000 shares per day. It charges 50 bps in annual fees and holds about 95 securities in its basket. Of these firms, IBM takes the third spot, making up roughly 8% of the assets. In terms of industrial exposure, the fund allocates nearly one-third portion in semiconductor and semiconductor equipment, followed by software (14.3%), technology hardware, storage & peripherals (11.7%), diversified telecom services (11.7%), and communication equipment (10.1%).

Guggenheim Dow Jones Industrial Average Dividend ETF (DJD - Free Report)

This ETF offers exposure to high-yielding companies included in the Dow Jones Industrial Average by tracking the Dow Jones Industrial Average Yield Weighted. It holds 30 stocks in it basket with IBM occupying the second position with 5.2% allocation. Information technology, industrials, healthcare, and consumer discretionary are the top four sectors. DJD has been able to manage assets worth $11.3 million while trades in volume of 3,000 shares a day on average.  It charges 30 bps in annual fees and has a Zacks ETF Rank #3 (Hold) (read: 5 Trending Dividend-Yield Weighted ETFs).
Ultra Dividend Revenue ETF (RDIV - Free Report)

This product invests in securities on the S&P 900 with the highest-trailing dividend yield. Each of these securities are then weighted by top line, instead of market capitalization. The fund holds 62 stocks in its basket, with IBM taking the fifth spot with 5% share. The fund is skewed toward consumer discretionary, which accounting for one-fourth of the portfolio while telecom, utilities, information technology, energy and real estate round off the next five. It has AUM of $512.2 million and average daily volume of 80,000 shares. The product charges 39 bps in annual fees and has a Zacks ETF Rank #3.

SPDR Dow Jones Industrial Average ETF (DIA - Free Report)

This fund follows the Dow Jones Industrial Average, providing exposure to 30 blue-chip U.S. stocks. IBM occupies the eighth position in the basket with 4.4% share. The ETF is well spread out across a number of sectors with industrials, information technology, financials, consumer discretionary and health care taking the top five spots with a double-digit exposure each. DIA is one of the largest and most popular ETFs in the space with AUM of $18.7 billion and average daily volume of around 2.5 million shares. It charges 17 bps in annual fees from investors and has a Zacks ETF Rank #3 (read: Will Dow ETFs Continue to Shine in Q3 Earnings?).

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