April Webinar RegistrationApril Webinar Registration


IBM Nicked On Business Fundamentals Ahead Of Q3 Earnings Report

Growth-challenged IBM reports Q3 earnings on Monday. (Caro/Olaf Jandke/Newscom)

Cowen analyst Kulbinder Garcha, who has been a persistent bear on IBM (IBM), issued a research note critical of the computer giant's upcoming earnings, expecting it to miss certain consensus targets.

"We see little evidence of an inflection in the business fundamentals," Garcha wrote. "In fact, it is increasingly likely for IBM to miss the full-year EPS guidance."


IBD'S TAKE: IBM has a weak Composite Rating of 49, meaning it's underperforming 51% of stocks in the past year based on a variety of metrics. Learn why its drop below the 50-day line is a bearish signal.


IBM has been undergoing a major transition that has included shedding multibillion-dollar businesses. In the past several years, Big Blue has sold off computer hardware units, reshuffled its software businesses and realigned its workforce to reduce costs as it focuses on growth areas such as cloud computing, Big Data analytics, security and mobile computing — areas that it calls strategic imperatives. Since 2010, IBM has invested about $30 billion in these areas.

IBM is schedule to report third-quarter earnings after the market close Monday. The consensus estimate is for IBM to report revenue of $19 billion, down 1.5% from the year-earlier quarter. The consensus on earnings per share minus items is $3.23, down 3% and the sixth quarter in a row of year-over-year declines.

Garcha said that while IBM laid out a cost-saving plan in Q1, "we believe the efficacy of this will be minimal, as most of it will be reinvested with little dropped to the bottom line." He said the restructuring "has proved less and less effective."

Garcha reiterated an underperform rating on IBM stock, with a price target of 110.

IBM stock closed down 0.3% at 154.29 in the stock market today. IBM stock is up 12% this year but down 6% from a 14-month high of 164.96 set on Aug. 11, and it's been trading below its 50-day line for more than a month.

IBM slightly beat Wall Street estimates when it reported Q2 earnings July 18. That was followed by several price-target hikes.

The company, part of the Dow industrials, pays a quarterly dividend of $1.40 a share, for an annualized yield of about 3.5%. The dividend has a history of steady increases, and IBD calculates that its dividend growth rate is one of the highest in its database.

Editor's Note: Clarified to say IBM's Q3 revenue is expected to decline 1.5%, not rise 1.5%.

RELATED:

Microsoft, IBM, Google Brace For Amazon, VMware Cloud Partnership

Accenture Spikes To 16-Year High As Earnings Top, Bookings Strong