Summary IBM has been a popular stock among investors, with its shares returning -3.2% over the past month, compared to the S&P 500 composite's -1.7% change. Despite media reports and rumors that can cause stock price fluctuations, fundamental factors drive long-term investment decisions. In this article, we will analyze IBM's earnings estimates revisions, revenue growth forecasts, last reported results and surprise history, valuation multiples, and Zacks Value Style Score to determine its future direction.
Key Factors Influencing IBM's Stock Performance
Revisions to Earnings Estimates
Evaluating the change in a company's earnings projection is crucial for determining its fair value. Sell-side analysts covering IBM have been revising their earnings estimates to take into account the latest business trends. When earnings estimates go up, the fair value of the stock increases, leading to an upward price movement.
IBM is expected to post earnings of $3.74 per share for the current quarter, representing a year-over-year change of -3.4%. The consensus earnings estimate of $10.16 for the current fiscal year indicates a year-over-year change of +5.6%. For the next fiscal year, the consensus earnings estimate of $10.61 indicates a change of +4.5% from what IBM is expected to report a year ago.
Externally Audited Track Record: Zacks Rank
Our proprietary stock rating tool, the Zacks Rank, harnesses the power of earnings estimate revisions and other factors related to earnings estimates. The size of the recent change in the consensus estimate, along with three other factors, has resulted in a Zacks Rank #2 (Buy) for IBM.
Chart: Evolution of IBM's Forward 12-Month Consensus EPS Estimate
The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:
Revenue Growth Forecast
A company's earnings growth is arguably the best indicator of its financial health, but revenue growth is essential for long-term sustainability. Knowing a company's potential revenue growth is crucial.
In the case of IBM, the consensus sales estimate of $17.6 billion for the current quarter points to a year-over-year change of +1.3%. The $62.8 billion and $65.85 billion estimates for the current and next fiscal years indicate changes of +1.5% and +4.9%, respectively.
Last Reported Results and Surprise History
IBM reported revenues of $14.97 billion in the last reported quarter, representing a year-over-year change of +1.5%. EPS of $2.30 for the same period compares with $2.20 a year ago.
Compared to the Zacks Consensus Estimate of $15.19 billion, the reported revenues represent a surprise of -1.46%. The EPS surprise was +1.32%.
The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates two times over this period.
Valuation
Determining whether a stock's current price correctly reflects its intrinsic value and growth prospects is crucial for predicting its future price performance. Comparing valuation multiples such as P/E, P/S, and P/CF with historical values helps determine whether the stock is fairly valued or not.
The Zacks Value Style Score grades stocks from A to F based on traditional and unconventional valuation metrics. IBM is graded C, indicating that it is trading at par with its peers.
Conclusion
The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about IBM. However, its Zacks Rank #2 does suggest that it may outperform the broader market in the near term.
The information presented in this article highlights key factors influencing IBM's stock performance, including revisions to earnings estimates, revenue growth forecasts, last reported results and surprise history, valuation multiples, and Zacks Value Style Score. By analyzing these factors, investors can make informed decisions about whether to invest in IBM or not.