- IBM is anticipated to submit adjusted fourth quarter earnings of $3.59 per share after Wednesday’s market shut.
- Income is anticipated to slide 2% whereas rising in fixed forex phrases.
- Shares outperformed all large-cap techs in 2022 due to IBM’s defensive positioning.
- Massive Blue depends totally on recurring income from managing important laptop methods and networks for big enterprise purchasers.
Info know-how supplier IBM (IBM) heads into its earnings report after Wednesday’s closing bell having handily outperformed glitzier tech bellwethers over the previous yr, an uncommon place for a know-how pioneer that has badly lagged the sector in returns over the long term.
IBM ought to submit fourth-quarter adjusted earnings of $3.59 per share, up from $3.35 per share a yr earlier, whereas income might have slipped 2% to $16.4 billion, in accordance with analysts’ estimates compiled by Seen Alpha.
IBM’s defensive positioning as a supplier of important enterprise IT software program and companies with a excessive proportion of recurring income has propped up the share worth however shall be examined by the current slowdown in tech spending.
Shares have gained nearly 10% over the previous yr, in contrast with a 13% decline for the S&P 500 Info Know-how Sector Index (see chart beneath). IBM additionally has returned 4.6% of its current share worth in dividends over the previous yr vs. the index dividend yield of 0.7%. Over the previous 5 years, nonetheless, the index has gained 96% whereas IBM shares are down 11%.
Whereas Massive Blue’s gross sales stagnated for years, third-quarter income was up 15% on a continuing forex foundation after accounting for IBM’s spinoff of its declining managed infrastructure companies enterprise as Kyndryl (KD) in late 2021. On the identical fixed forex foundation, IBM projected annual income progress “above its mid-single digit mannequin” together with $10 billion in full-year 2022 free money circulation when it launched third-quarter outcomes.
Wall Road’s Cut up Verdict
The corporate’s 5% progress aim is in danger in 2023 as is the inventory’s current outperformance amid anticipated “early cycle dynamics” favoring sooner progress corporations later this yr, Morgan Stanley analysts warned final week in downgrading IBM shares to equal weight from obese.
Financial institution of America, against this, reiterated its Purchase ranking on IBM the identical day, citing a progress turnaround, improved money era, defensive enterprise positioning, and an “enticing” dividend yield. “We anticipate shares of IBM to outperform in a weaker macro backdrop on an bettering elementary story,” BofA analysts wrote.
Additionally final week, Evercore ISI added IBM to its “tactical outperform listing” forward of earnings, citing its recurring income and enterprise clientele as benefits in a downturn. Whereas greenback energy has lately harm income and earnings, that energy has since reversed and may function a tailwind within the fourth quarter and 2023, in accordance with Evercore’s analysts.
IBM Share Worth vs. S&P 500 IT Sector Index, Previous 12 months
IBM Key Stats
|Estimate for This fall FY 2022||This fall FY 2021||This fall FY 2020|
|Adjusted Earnings Per Share ($)||3.59||3.35||1.88|
Supply: Seen Alpha