International Business Machines Corp. (IBM) is set to report third quarter 2014 results on Oct 20. Last quarter, it posted a 0.23% positive surprise. The company has posted an average positive earnings surprise of 1.08% over the past four quarters.

Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

We believe that IBM’s investments in cloud computing, Big Data, mobile and security will continue to boost software and services revenues. The company’s research capabilities and the recent investments in chip development are positives over the long term. IBM’s revenue growth will continue to benefit from its strong backlog.

The launch of the Internet of Things (IoT) platform called the IoT Foundation as well as the recent partnership with SAP is expected to expand company’s portfolio of cloud-related services. The deal with Apple will help it to expand its software, services and consulting business in the enterprise market, going forward.

However, intensifying competition from the likes of Oracle (ORCL), Hewlett-Packard, SAP and Microsoft remains a major headwind. Further, sluggish IT spending particularly on on-premise and data center hardware will continue to hurt IBM in the near term.

Earnings Whispers?

Our proven model does not conclusively show that IBM is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $4.31. Hence, the difference is of 0.00%.

Zacks Rank # 2 (Buy): Though Zacks Ranks #1, 2 or 3 increase the predictive power of ESP, IBM’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Apple Inc. (AAPL), Earnings ESP of +4.62% and Zacks Rank #2

InvenSense, Inc. (INVN), Earnings ESP of +10.00% and Zacks Rank #2

Read the Full Research Report on AAPL
Read the Full Research Report on IBM
Read the Full Research Report on ORCL
Read the Full Research Report on INVN


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