Back to top

Image: Bigstock

ETFs in Focus as IBM Gears Up to Report Q3 Earnings

Read MoreHide Full Article

International Business Machines (IBM - Free Report) is scheduled to report third-quarter 2019 results on Oct 15 after market close. Being the world’s largest computer-services provider, it is worth taking a look at its fundamentals ahead of results.

IBM has shed 0.4% over the past three months and underperformed the industry, which declined 0.1% in the said time frame. The negative trend might reverse if IBM beats earnings estimates.



Inside Our Methodology

IBM has a Zacks Rank #3 (Hold) and an Earnings ESP of -0.57%. According to our surprise prediction methodology, the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 and a positive Earnings ESP increases the odds of an earnings beat. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided going into an 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 stock has seen negative earnings estimate revision of seven cents for the third quarter over the past 30 days. The Zacks Consensus Estimate indicates substantial earnings decline of 22.8% from the year-ago quarter. IBM projects modest year-over-year revenue decline of 2.7%. However, its earnings track record is impressive, with the average four-quarter positive earnings surprise being 1.81%. The stock boasts a solid Value Score of A and belongs to a bottom-ranked Zacks industry (top 40%).

The Zacks Consensus Estimate for average target price is $157.75 with 40% of the analysts having a Strong Buy or a Buy rating and 60% having a Hold rating ahead of earnings. This represents nearly 10.5% upside from the current price (read: 4 Sector ETFs & Stocks to Bet on Ahead of Q3 Earnings).

What to Watch?

Investors’ attention is on IBM’s $34 billion Red Hat acquisition completed in July. The company anticipates the transaction to be accretive to free cash flow in the first year, and accretive to non-GAAP earnings per share by the end of the second year on completion.

ETFs in Focus

Given this, ETFs having the highest allocation to this this tech giant will be in focus. 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 $1 billion in its asset base while trading in volume of around 86,000 shares per day. It charges 50 bps in annual fees and holds about 93 securities in its basket. Of these firms, IBM takes the third spot, making up roughly 8.2% of the assets.

Invesco 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 their 12-month dividend yield over the prior 12 months. It holds 30 stocks in its basket, with IBM occupying the third position with 5.8% allocation. DJD has been able to manage assets worth $83 million, while trading in volume of 21,000 shares a day on average. It charges 7 bps in annual fees and has a Zacks ETF Rank #3 (Hold) (read: Will Q3 Earnings Drive Dow ETF Higher?).

WBI Power Factor High Dividend ETF (WBIY - Free Report)

This ETF offers exposure to quality stocks that have the highest dividend yield with a deep value bias and multi-factor fundamental analysis. It follows the Solactive Power Factor High Dividend Index, holding 51 stocks in the basket with IBM taking the sixth spot at 4.7%. The product has amassed $91.2 million in its asset base and trades in lower volume of 26,000 shares a day on average. It charges 70 bps in annual fees.

Schwab U.S. Dividend Equity ETF (SCHD - Free Report)

With AUM of $10.4 billion, this product offers exposure to 109 high dividend yielding U.S. companies that have a record of consistent dividend payments supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. IBM occupies the ninth position in the basket with 4.3% share. The fund trades in solid volume of 740,000 shares a day and is one of the low cost choices in the dividend space, charging 6 bps in fees per year. It has a Zacks ETF Rank #3 with a Medium risk outlook (read: Dividend ETFs to Grab as Fed Cuts Rates Once Again).

Tortoise Cloud Infrastructure Fund (TCLD - Free Report)

This ETF offers exposure to companies that have the potential to benefit from the expected growing investments, rapid adoption and fast paced innovation of the cloud industry by tracking the Tortoise Global Cloud Infrastructure Index. It holds 46 securities in its basket with IBM taking the sixth spot at 4.5% share. TCLD has been able to gather $4 million in its asset base since its debut in January and sees lower volume of nearly 500 shares. It charges 40 bps in annual fees.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Published in