International Business Machines Corp. (IBM) is set to report fiscal fourth-quarter 2013 results on Jan 21. In the prior quarter, the company posted earnings surprise of 1.0%. Moreover, the company has posted an average positive earnings surprise of 1.3% over the past four quarters.
Let’s see how things are shaping up for the company in this quarter.
Growth Factors this Past Quarter
IBM’s results will primarily depend on the performance of the software segment, while any improvement in the hardware sales will be encouraging. We believe that software sales will be driven by IBM’s aggressive expansion into the cloud. Cloud revenues jumped 70% in the third quarter.
Most recently, the company announced plans to invest $1.2 billion to build 15 data centers. Although this investment has limited near-term implications ahead of the results, we believe that this strategic investment will boost IBM’s top line over the long term.
IBM’s continuing share buyback program is also expected to boost its bottom line in the fourth quarter.
Earnings Whispers?
Our proven model does not conclusively show that IBM will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 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 $6.01. Hence, the difference is 0.00%.
Zacks Rank #3 (Hold): IBM’s Zacks Rank #3, when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Netflix (NFLX), with Earnings ESP of +1.54% and a Zacks Rank #1 (Strong Buy).
Western Digital (WDC), with Earnings ESP of +0.48% and a Zacks Rank #1.
Cirrus Logic (CRUS), with Earnings ESP of +4.41% and a Zacks Rank #1.
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