International Business Machines Corp. (NYSE: IBM) is scheduled to report its second-quarter financial results after the markets close on Monday. Big Blue has engineered earnings per share numbers for many years, and now its earnings and revenue trends are not favorable. The company just cannot get its Watson and other new initiatives to grow fast enough to offset the bleeding in its core IT-services business. Even Warren Buffett as the largest holder hasn’t swayed the public, and IBM is no longer so focused on demonstrating its backlog of orders. The question is, what do these earnings hold for IBM?
The consensus estimates from Thomson Reuters call for $2.89 in earnings per share (EPS) on $20.03 billion in revenue. In the same period of last year, it posted EPS of $3.84 and $20.81 billion in revenue.
Just this past May, the Wall Street Journal noted that IBM was laying off several thousand employees in multiple U.S. locations as the company restructures and realigns itself to move more toward cognitive solutions and cloud platforms. The Wall Street Journal believes these layoffs are part of the restructuring the company had already announced. Besides the strategic initiatives, the restructuring was also to reduce costs by moving to low-cost regions (some jobs are believed to be moving to India and Costa Rica).
This one is a stock that everyone seems to hate. Still, IBM has bounced handily off its lows, and Buffett likely feels less worried that he has over $10 billion tied up in such a poor-performing tech stock. IBM is magically up better than 18% year to date, but its stock performance is still down 3% if compared to a year ago. Buffett likely is still underwater here, but he probably won’t sell any shares, and in fact he may buy more.
A few analysts weighed in on IBM prior to the release of the earnings report:
- Morgan Stanley reiterated a Buy rating.
- Cantor Fitzgerald reiterated a Hold rating.
- Barclays reiterated a Sell rating.
- Drexel reiterated a Buy rating.
- Credit Suisse reiterated a Sell rating.
- Societe Generale has a Sell rating with a $115 price target.
- JMP Securities reiterated a Buy rating with a $157 price target.
Shares of Big Blue closed Friday at $159.78, with a consensus analyst price target of $144.43 and a 52-week trading range of $116.90 to $173.78.