Why IBM (IBM) Is Weak After Beating EPS - RBC
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RBC Capital analyst, Amit Daryanani, reiterated his Sector Perform rating on shares of IBM (NYSE: IBM) after the company reported Sept-qtr results of $19.2B/$3.29, which beat consensus estimates of $19.0B/$3.23 on both revenue and EPS.
However, the quality of EPS will be a focus for investors since IBM saw two unusual benefits:
1) a lower tax rate of 14% vs. expectation of 18%
2) IP revenues ~$300M higher than expected that helped offset gross-margin headwinds across the business segments, (Cognitive in particular).
The focus for IBM will likely shift towards CY17 where the lack of 1x items could make the path towards showing EPS/FCF growth more difficult to realize, though minimal f/x headwinds and more buyback contribution could be an incremental positive.
IBM does not provide formal quarterly guidance and the implied EPS guide for the December quarter EPS would be “at least ~$4.92” ($13.50 CY16 EPS guide). The analyst's CY16 revenue/EPS estimates move to $79.9B/$13.50.
Separately, management maintained its free cash flow guidance for 2016 at the higher end of the original $11-12B guidance. Although at the higher end of guidance, this is down from $13B+ in 2015.
No change to the price target of $165.00
Shares of IBM closed at $154.77 yesterday.
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