Investors knew what they were doing when pushing shares of IBM (IBM) to within a stone’s throw of its 52-week high in the run-up to its third-quarter report.
After the bell on Monday, IBM announced earnings per share of $2.82 for the quarter, which beat the Zacks Consensus Estimate of $2.75 by about 2.5%. This was the 12th straight quarter with a positive earnings surprise. In fact, the worst that the company has done in the past several years has been to match expectations.
The result was also nearly 18% better than the previous year’s $2.40 per share. The company made sure to let us know that it has put together 31 straight quarters of EPS growth, with 13 of the last 15 being in double digits.
Total revenues increased 3% from last year to $24.3 billion, which was also ahead of the Zacks Consensus Estimate at practically $24.1 billion. This is important since IBM failed to meet revenue expectations in the second quarter.
IBM sees earnings per share to be at least $11.40 in 2010, which is well ahead of the Zacks Consensus Estimate at $11.28.
Right now there are 21 total estimates for 2010 and 20 total estimates for 2011. In the past 30 days, there has been a grand total of 1 (one) revision. It was to the upside though! That’s a lot of analysts who have been sitting on their hands when it comes to IBM. It’s no wonder that this company is a Zacks #3 Rank (‘hold’).
As mentioned above, the company is expected to earn $11.28 per share this year. That’s a penny below the result from 2 months ago and 2 cents better than 3 months ago. It’s really not even worth mentioning that though. Basically, it hasn’t moved in a while.
For 2011, the Zacks Consensus Estimate of $12.40 is up a penny in 30 days (thanks to that single upward revision.) However, if you go back 3 months, the guidance is up a mighty 6 cents, or way less than 1%.
Will today’s report be enough to break this company out of the Zacks #3 Rank? It can be tough to move a company the size of IBM, so we’ll have to keep an eye on it.
In the longer term, we have a “Neutral” recommendation on the company. There’s basically a lot to like about IBM, including its growth initiatives and impressive performance in emerging markets. We see the company as a fundamentally sound, long-term value for investors.
However, we are cautious about some near-term concerns, such as currency headwinds, European weakness, increasing competition, late hardware recovery, lower service contract signings and weak IT spending are headwinds.
We’ll have to wait and see if the third-quarter has assuaged any of these fears.
While investors bid up the stock before the quarterly report, shares of IBM have actually moved lower in after hours by more than 3%.
We’ll have a lot more on IBM’s third-quarter report coming up, including a breakdown in the performances of its segments. Stay tuned…
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