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IBM Earnings: Wall Street Is Confused About The Technology Giant's Future

This article is more than 6 years old.

Wall Street has been bullish on technology companies these days, but not on IBM. In fact, IBM’s shares have been heading south at a time when the tech heavy NASDAQ -100 index has been heading north.

There’s a good explanation for this: investors and analysts are confused over the company’s future.

On the one hand, IBM has made great progress in moving into new faster growing market segments. On the other hand, it continues to have a large presence in the old mature markets that depresses overall sales growth and operating margin—see tables.

IBM Versus The Rest Of The Technology Sector

Company/ETF

12-month Performance

5-year performance

IBM

-3.52%

-19.85%

PowerShares QQQ

26.26

121.23

Source: Finance.yahoo.com 

IBM’s Key Financial Metrics 7/14/2017

Forward PE

Operating Margin

Revenues (ttm)

Qrtrly Revenue Growth (yoy)

Div&yield

11.08

16.99%

$79.39B

-2.80%

3.91%

Source: Finance.yahoo.com

IBM’s Key Financial Metrics 1/17/2016

Forward PE

Operating Margin

Revenues (ttm)

Qrtrly Revenue Growth (yoy)

Div&yield

8.78

20.88%

$83.80B

-13.90%

3.91%

Source: Finance.yahoo.com

Will IBM clear Wall Street’s confusion? We’ll know this week when the company reports earnings.

In 2Q16, IBM reported operating EPS: $2.95 operating (non-GAAP) from continuing operations on $20.2 billion in revenues.

In 2Q17, financial analysts expect the company to report operating EPS: $2.75 operating (non-GAAP) from continuing operations on $19.5 billion in revenues.

Full-year operating (non-GAAP) earnings per share from continuing operations of at least $13.80.

Full-year free cash flow relatively flat year-to-year, with a realization rate in excess of 90 percent of GAAP net income. 

Earlier this year IBM said it expects: 

    -- First-half operating EPS to be about 37 percent of full-year operating EPS expectations, a skew similar to recent years. 

    -- An ongoing effective operating tax rate of 15 percent plus or minus 3 points, excluding discrete tax items. 

    -- Intellectual property income for full year 2017 to be similar to 2016 ($1.6 billion) 

But the number Wall Street will be watching the most is revenues from the company’s strategic imperatives--- cloud, analytics, mobile, social and security. IBM expects to generate $33.6 billion in revenue and represented 42 percent of total IBM revenue over the previous 12 months through 1Q17. 

They are expected to reach $40 billion and represent more than 40 percent of revenue in 2018. 

Will the company beat this number? If yes, it will help clear Wall Street’s confusion over the future of the technology giant. If not, the confusion will continue to haunt IBM’s shares for another quarter.