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What to Expect from IBM’s Q4 Earnings

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IBM (NYSE:IBM) stock rose 0.24% on January 17 and closed at $138.31. The stock was trading 9.6% below its 52-week high of $152.95. Meanwhile, the stock was trading 13.8% above its 52-week low of $121.54. At the closing price on January 17, the stock had a market capitalization of $122.5 billion.

IBM stock has gained 13.2% in the last 12 months. The S&P 500 Index has increased by 24.7%. Oracle (NASDAQ:ORCL) and Microsoft (NASDAQ:MSFT) have gained 13.5% and 57.5%, respectively.

What can investors expect from IBM’s fourth-quarter results? The company is scheduled to announce its fourth-quarter earnings results on Tuesday after the market bell.

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IBM’s fourth-quarter expectations

Wall Street analysts expect IBM to report revenues of $21.6 billion in the fourth quarter—a fall of 0.6% YoY (year-over-year) compared to $21.8 billion in the fourth quarter of 2018. Also, analysts expect the company’s adjusted earnings to fall by 3.7% YoY to $4.69 per share in the fourth quarter.

Analysts expect IBM’s revenues to fall by 3.2% in 2019 to $77.0 billion. The sales will likely rise by 3.0% in 2020 to $79.4 billion. The adjusted earnings are also expected to fall by around 7.3% in 2019 to $12.80 per share. However, the profits are expected to rise by 3.8% to $13.29 per share in 2020.

Microsoft is set to report its results for the second quarter of fiscal 2020 on January 29. In the quarter ending in December, analysts expect the company’s adjusted EPS to rise 20% YoY to $1.32. Microsoft’s revenues could rise by 9.9% YoY to $35.7 billion.

Analysts’ recommendations and target price

Among the 21 analysts covering IBM stock, five recommend a “buy” rating, 14 recommend a “hold” rating, and two recommend a “sell” rating.

Currently, analysts have a 12-month target price of $146.89 on IBM stock. On January 17, the stock was trading at a discount of 6.2% to analysts’ 12-month target price. The median target price was $145.00 on the same date.

On January 17, Morgan Stanley analyst Katy Huberty downgraded IBM stock to an “equal weight” rating from an “overweight” rating. Morgan Stanley slashed the target price to $155 from $170 on the stock. The target price of $155 is at a 5.6% premium to IBM’s stock price as of January 17. According to the MarketWatch report on January 17, Huberty said, “Morgan Stanley’s recent survey of chief information officers provides new evidence of core IBM revenue declines, particularly in software and services.” The report also said, “Huberty expects the company to give a full-year earnings outlook on its conference call, and her earnings-per-share estimate of $12.80 for calendar 2020 is below the $13.28 FactSet consensus and would be flat with what analysts expect for calendar 2019.”

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IBM stock’s valuation

Currently, IBM stock is trading at 10.40x its fiscal 2020 estimated non-GAAP EPS of $12.80. The stock is also trading at 9.73x its fiscal 2021 estimated non-GAAP EPS of $13.29. Analysts expect IBM’s earnings to rise at a compound annual growth rate of 1.44% in the next five years.

Technical analysis

Based on the closing price on January 17, IBM stock was trading 2.1% above its 20-day moving average of $135.49. The stock is also trading 2.6% above its 50-day moving average of $134.87 and 0.9% above its 100-day moving average of $137.08.

IBM’s 14-day RSI (relative strength index) score is 65. The score suggests that the stock is approaching the “overbought” zone. IBM’s upper, middle, and lower Bollinger Band levels are $138.16, $135.49, and $132.82, respectively. On January 17, the stock closed near its upper Bollinger Band level, which indicated that it’s overbought.

In the first nine months of 2019, IBM’s free cash flow rose 8.6% YoY (year-over-year) to $5.9 billion. The company’s operating cash flow also increased by 1.7% YoY to $11.3 billion. IBM’s capital expenditures fell 39.2% YoY to $1.7 billion in the first nine months of 2019.

In the first nine months of 2019, IBM returned $4.3 billion to shareholders in the form of dividends. On January 17, the company’s dividend yield was 4.69%. Read IBM: UBS Downgrades Stock, Predicts Lower Revenues to learn more.

Stay tuned to learn how IBM performed in the fourth quarter and fiscal 2019.

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