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Can IBM Beat Analysts’ Third-Quarter Earnings Estimate?

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Earnings outlook and estimates

IBM (IBM) is expected to report its third-quarter financial results on October 16. Analysts expect IBM’s third-quarter EPS to be $3.4. The company’s total EPS for the last nine months should be ~$8.93. In order to meet its 2018 EPS target, IBM will be left with only $4.87 to be achieved in its final quarter.

In the above graph, you can see IBM’s EPS growth in the last five quarters. During this period, the company outperformed analysts’ estimate. During the same period, IBM’s bottom line increased at a compound annual growth rate of 2.5%. The EPS in the second quarter stood at $3.08, which reflects 10.4% growth YoY (year-over-year) compared to the same quarter the previous year.

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EPS catalysts and headwinds

IBM’s investment in innovative technologies like blockchain and Watson health and financials have started generating many new orders. Many hospitals, banks, and large retail players like Walmart (WMT) and Citigroup (C) have embraced the new platform in their systems. The higher adoption of the new technology could drive the EPS growth.

In addition, rolling out the new tax reform in the United States might act as a catalyst for the company’s bottom-line growth going forward.

However, higher research and development expenses and rising selling and marketing costs might continue to act as headwinds for IBM’s EPS in the third quarter. The strong US dollar could impact the company’s global business going forward.

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