We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Should You Bet on IBM Stock Ahead of Q2 Earnings Release?
Read MoreHide Full Article
International Business Machines Corporation (IBM - Free Report) is scheduled to report second-quarter 2024 earnings on Jul 24. The Zacks Consensus Estimate for sales and earnings is pegged at $15.58 billion and $2.16 per share, respectively. Earnings estimates for IBM have declined marginally from $9.90 per share to $9.89 for 2024 but are up from $10.32 per share to $10.33 for 2025 over the past 30 days.
IBM Estimate Trend
Image Source: Zacks Investment Research
Earnings Surprise History
The cloud and data platform delivered a four-quarter earnings surprise of 5.2%, on average, beating estimates on each occasion. In the last reported quarter, the company delivered an earnings surprise of 5.7%.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model predicts an earnings beat for IBM for the second 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 perfectly the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
IBM’s Watsonx platform is likely to be the core technology platform for its AI capabilities. Watsonx delivers the value of foundational models to the enterprise, enabling them to be more productive. Leveraging the combination of Generative AI and large language models in the Watsonx platform, IBM introduced several enticing features during the quarter to the premier golf championship of the Masters Tournament’s digital platforms.
It also collaborated with The All-England Lawn Tennis Club to introduce Generative AI technology in the Wimbledon tournament to enrich the overall experience of tennis fans, coaches and players globally. 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 $5.33 billion, while our model projects revenues of $5.37 billion.
During the reported quarter, IBM announced significant updates to Qiskit, its widely used quantum software platform. These enhancements provide IBM Quantum Network members with the most advanced tools to discover new quantum algorithms. As users seek to achieve quantum advantage — where quantum computers outperform classical ones — Qiskit’s comprehensive stack is pivotal. The platform supports mapping problems for efficient execution on quantum hardware, optimizing these problems and executing them effectively, bridging the gap between classical and quantum computation. 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 $6.56 billion, while our model projects revenues of $6.61 billion.
However, despite solid hybrid cloud and AI traction, IBM is facing stiff competition from Amazon Web Services and Microsoft Corporation’s (MSFT - Free Report) 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 38.5% compared with the industry’s growth of 25.9%. It has also outperformed its peers like Microsoft and Oracle Corporation (ORCL - Free Report) over this period.
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 18.51 forward earnings, higher than 18.08 for the industry and the stock’s mean of 12.54.
Image Source: Zacks Investment Research
Investment Considerations
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 drive its profitability. IBM is poised to benefit from strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments.
However, IBM’s frequent acquisitions have escalated integration risks. Buyouts have negatively impacted the company’s balance sheet in the form of high level of goodwill and net intangible assets. IBM’s margins are likely to be 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. With declining earnings estimates, the stock is witnessing a negative investor perception. Consequently, it might not be a prudent decision 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. In addition, 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 AI solutions will likely reap long-term benefits.
A better business mix, improving operating leverage through productivity gains and increased investments in growth opportunities are expected to be conducive to long-term growth. These, in turn, offer some enticing reasons for continuing to invest in the stock over a long-term horizon.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Should You Bet on IBM Stock Ahead of Q2 Earnings Release?
International Business Machines Corporation (IBM - Free Report) is scheduled to report second-quarter 2024 earnings on Jul 24. The Zacks Consensus Estimate for sales and earnings is pegged at $15.58 billion and $2.16 per share, respectively. Earnings estimates for IBM have declined marginally from $9.90 per share to $9.89 for 2024 but are up from $10.32 per share to $10.33 for 2025 over the past 30 days.
IBM Estimate Trend
Image Source: Zacks Investment Research
Earnings Surprise History
The cloud and data platform delivered a four-quarter earnings surprise of 5.2%, on average, beating estimates on each occasion. In the last reported quarter, the company delivered an earnings surprise of 5.7%.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model predicts an earnings beat for IBM for the second 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 perfectly 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 +0.46% with a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Shaping Upcoming Results
IBM’s Watsonx platform is likely to be the core technology platform for its AI capabilities. Watsonx delivers the value of foundational models to the enterprise, enabling them to be more productive. Leveraging the combination of Generative AI and large language models in the Watsonx platform, IBM introduced several enticing features during the quarter to the premier golf championship of the Masters Tournament’s digital platforms.
It also collaborated with The All-England Lawn Tennis Club to introduce Generative AI technology in the Wimbledon tournament to enrich the overall experience of tennis fans, coaches and players globally. 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 $5.33 billion, while our model projects revenues of $5.37 billion.
During the reported quarter, IBM announced significant updates to Qiskit, its widely used quantum software platform. These enhancements provide IBM Quantum Network members with the most advanced tools to discover new quantum algorithms. As users seek to achieve quantum advantage — where quantum computers outperform classical ones — Qiskit’s comprehensive stack is pivotal. The platform supports mapping problems for efficient execution on quantum hardware, optimizing these problems and executing them effectively, bridging the gap between classical and quantum computation. 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 $6.56 billion, while our model projects revenues of $6.61 billion.
However, despite solid hybrid cloud and AI traction, IBM is facing stiff competition from Amazon Web Services and Microsoft Corporation’s (MSFT - Free Report) 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 38.5% compared with the industry’s growth of 25.9%. It has also outperformed its peers like Microsoft and Oracle Corporation (ORCL - Free Report) over this period.
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 18.51 forward earnings, higher than 18.08 for the industry and the stock’s mean of 12.54.
Image Source: Zacks Investment Research
Investment Considerations
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 drive its profitability. IBM is poised to benefit from strong demand for hybrid cloud and AI, driving growth in the Software and Consulting segments.
However, IBM’s frequent acquisitions have escalated integration risks. Buyouts have negatively impacted the company’s balance sheet in the form of high level of goodwill and net intangible assets. IBM’s margins are likely to be 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. With declining earnings estimates, the stock is witnessing a negative investor perception. Consequently, it might not be a prudent decision 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. In addition, 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 AI solutions will likely reap long-term benefits.
A better business mix, improving operating leverage through productivity gains and increased investments in growth opportunities are expected to be conducive to long-term growth. These, in turn, offer some enticing reasons for continuing to invest in the stock over a long-term horizon.