Q2 Preview: IBM (IBM) Expected to Have Strong Showing on Hardware, Storage

International Business Machines (NYSE: IBM) is trading modestly lower this afternoon ahead of third-quarter results, expected out after the close of trading Monday.

IBM should report quarterly earnings around $3.03 per share on revenue of $25.35 billion. Earnings would be a 25.7 percent sequential rise from $5.41 reported last quarter, and a 16.1 percent jump from the same period last year.

Shares gained 5.7 percent through the quarter and are up 1.5 percent since. Year-to-date, the stock is up nearly 18 percent.

Data from Bloomberg has 16 analysts with a Buy rating on the stock, 15 at Hold, and none suggesting to Sell. Click here for a ratings history on IBM leading up to earnings. The analyst price target average is $181, with a low of $145 and high of $205. Shares have traded within a range of $122.28 to $177.77 over the last 52-weeks.

Analyst Commentary

• Goldman Sachs says IBM might provide an upside to estimates. "We expect to see a rebound in short-term signings, and pressure on long term signings that could ease somewhat. In our view, we would need to see more significant software upside before we could become more interested in the stock at current levels."
  
  Further, "the company appears to be executing well across its growth initiatives in business analytics, cloud computing, Smarter Planet, and in the growth geographies. We expect hardware revenues continued to benefit from IBM’s strong position in high-value systems, while software growth should remain robust. We anticipate a rebound in short term services signings and an improvement in long-term signings, though we do not expect the outsourcing pressure to ease entirely this quarter." Signings in constant currency should drop about 2 percent, narrower than an 18 percent drop last year. Software revs should grow 6.6 percent in the quarter, while Hardware might rise 13.5 percent amid tougher comps.
  
  Goldman is looking for EPS of $2.96 and revs of $25.02 billion.
  
  
• Deutsche Bank is looking for earnings of $3.01 per share on revs of $25.9 billion. "We believe IBM benefited from good growth in its hardware business as both the Mainframe and POWER product cycles continued (share gains from Oracle/Sun and HP). We also expect solid services revenue performance due the ramp of past wins/realization of past backlog growth." Deutsche notes IBM only announced 5 deals in the quarter, compared with 10 in the same period last year. Software should see a 12 percent revenue growth. Hardware will also benefit from "ongoing POWER7 and Mainframe refreshes and associated share gains vs. Oracle and HP."
  
  
• Collins Stewart is looking for EPS of $3.00 for the quarter. Collins issued an interesting statement on IBM: "IBM shares have entered a Goldilocks situation & should continue to perform well in both a good or bad environment. On the good side: if tech spending by large corporations & emerging economies continues to do well, then IBM should easily be able to deliver mid-single digit rev growth with double-digit EPS growth. In a bad environment, while not immune to the global economy, we believe IBM’s mgmt team has shown it can power through weak macro tech spending by controlling costs, as they did when they delivered 12% EPS growth through the 2008/2009 Great Recession."
  
  Collins notes Storage remains the strongest area in IT hardware spending. "Even though year over year compares are getting tougher in the server area, virtualization is driving x86 server demand," Collins contends.

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