IBM To Report Q2 Earnings: Disappointment In Store?

IBM Corporation (NYSE:IBM) is set to report second-quarter 2017 results on Jul 18. Last quarter, the company came up with a positive earnings surprise of 1.71%. In the past four quarters, the company delivered an average positive earnings surprise of 2.18%.

First-quarter earnings (including stock-based compensation) of $2.38 per share beat the Zacks Consensus Estimate by 4 cents and increased 1.3% from the year-ago quarter.

Revenues of $18.16 billion missed the Zacks Consensus Estimate of $18.49 billion and also decreased 2.8% year on year.

Notably, the company also underperformed the S&P 500 on a year-to-date basis. While the index gained 10.6%, the stock lost 5.8% over the same time period.

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

Factors at Play

IBM has been going through a difficult phase but there were certain developments in the second quarter of 2017, which are anticipated to have a positive impact on the company’s top line.

IBM is slowly becoming the preferred partner in Blockchain technology. It won important contracts including a multiline insurance project for American International Group (NYSE:AIG) and Standard Chartered (LON:STAN).

IBM Watson has also been the basis of multi-industrial partnerships, the recent one being with Baheal Pharmaceutical Group in China. Additionally, IBM Watson was also declared a leader in IoT Platforms 2017 by IDC.

The company is also trying to establish a strong foothold in the cloud market by enriching its cloud solutions portfolio.

Nevertheless, the largest shareholder of the company, Warren Buffett’s Berkshire Hathaway (NYSE:BRKa), sold a third of its share in the company in May, which had a negative impact on share price movement. Further, increasing competition from peers like Microsoft (NASDAQ:MSFT) , Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) is also a headwind.

Earnings Whispers

Our proven model does not conclusively show that IBM will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) 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 are pegged at $2.72. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: IBM carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are few companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Bruker Corporation (NASDAQ:BRKR) , with an Earnings ESP of +15.00% and a Zacks Rank #1.

Cypress Semiconductor Corporation (NASDAQ:CY) , with an Earnings ESP of +11.1% and a Zacks Rank #1.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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