International Business Machines Corp. (IBM) is set to report second quarter 2014 results on Jul 17. Last quarter it posted a 0.90% negative surprise. The company has posted an average positive earnings surprise of 2.15% over the past four quarters.
Let’s see how things are shaping up for this announcement.
Growth Factors this Past Quarter
Despite missing revenues five times in a row, IBM reiterated its 2014 earnings target of $18.00. This will be difficult to achieve unless there is a substantial improvement in revenue growth over the next three quarters. Also, the company needs to put a check on its operating expenses, which have been on the rise in the recent times.
We continue to believe that IBM’s strong backlog and the divestiture of its lower-margin customer care and server business units will boost top line and profitability in 2014. Moreover, continuing investments in cloud computing, smarter planet initiative and the analytics division will boost software and services revenues, going forward.
IBM’s acquisition of Cloudant and Aspera will improve its position in the cloud computing and Big Data market in 2014. However, fundamental challenges in the hardware segment will continue to hurt sales.
Moreover, intensifying competition from the likes of Oracle, Hewlett-Packard and SAP AG in the software, services and server market remains the primary headwind.
Earnings Whispers?
Our proven model does not conclusively show that IBM is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The Most Accurate estimate stands at $4.31, which in turn happens to coincide with the Zacks Consensus Estimate. 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 #4 and #5 Ranks (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 they have the right combination of elements to post an earnings beat this quarter:
NVIDIA Corporation (NVDA), Earnings ESP of +31.58% and Zacks #1 Rank (Strong Buy)
Silicon Motion Technology Corp. (SIMO), Earnings ESP of +33.33% and Zacks #1 Rank
Sandisk Corp. (SNDK), Earnings ESP of +3.85% and Zacks #2 Rank (Buy)
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment