The next catalyst is their earnings announcement today!

For a complete review of what the options market, charts, statistics, and history are implying for IBM today see the link below for it is very important to know every angle.

LINK HERE

http://www.keeneonthemarket.com/blog/1551-pregame-ibm-earnings-from-every-angle-ibm-qqq-10152012

The analyst community has an average price target of $219 on IBM and many analysts are expecting about $3.61 in EPS. Credit Suisse, who has a neutral on the stock, recently adjusted their Q3 2012 EPS to $3.69, they go on to note that IBM will face tough times bringing revenue back up to par, but also noted their migration to higher margin businesses that compensate for said headwinds. Credit Suisse later went on to state that IBM is actually more or less a defensive type of stock, for it will get 50% of their incremental EPS from M&A and buybacks over the next five years. While this is not the most shareholder friendly or organic way to grow it still boosts the bottom line and hopefully shareholder value.

IBM will benefit from the mainframe refresh cycle for they have been expanding their mainframe ecosystem as they have been growing inorganically, for example in the software services and cloud space. This cycle is where IBM is sensitive to macro events and trends. The mainframe cycle is expected to be weak and damper the announcement today. Credit Suisse expects systems & technology revenues to be $3.98bn (-11% YoY) in the quarter; which may be confirming IBM’s recent focus shift into other businesses. Meanwhile, software is going to be increasingly important for IBM. Their $3.5bn in acquisitions need to prove their value and boost growth. Analysts are expecting software revenues to be up mid single digits YoY.

The analyst community has 13 overweighs, 19 holds, and zero sells currently. The median PE for next year is 12.3, below the market, but next year IBM has about $16 in forecasted EPS, implying about a $192 price, below where we are now.

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Author

mark@keeneonthemarket.com