How Long Can IBM Keep Going Like This?
IBM will report quarterly earnings after the close of markets today. Having demonstrated some strength in the year of its 100th anniversary, Big Blue finds itself with its own unique set of challenges, says analyst Toni Sacconaghi of Bernstein Research in a note to clients today.
IBM, he says, should meet expectations for the quarter by delivering per-share earnings of $3.31, slightly better than the consensus estimate of $3.21. On top of that, he expects IBM to raise its guidance for earnings on the year to $13.35 per share or higher. Sacconaghi says IBM may earn as much as $13.60 a share this year, depending on how much it ultimately saves from workforce reductions and a lower tax rate. He says that IBM has beat its consensus in each of its last 15 quarters and raised annual earnings guidance in nine of its last 11 quarters.
All good, right? Sure, but how long can IBM keep this sort of thing going? Certainly not forever, especially in a tough global economy. Revenue growth this year will be difficult to compare to last year, Sacconaghi writes, especially in light of a stronger U.S. dollar, a slowing business cycle in hardware upgrades and a slowdown in services growth over the last 18 months. As such, his estimates for revenue growth are below those of the Street consensus: Where the Street expects IBM to report sales of nearly $112 billion in fiscal 2012, Sacconaghi expects $109.3 billion.
“IBM has benefited from a favorable currency environment, which has boosted the company’s headline revenue growth number, which is likely to reverse and pressure IBM’s reported revenues in the first half of 2012 at current spot rates,” he writes. “While we don’t expect this to lead to earnings misses versus the consensus given that IBM hedges, we believe that revenue estimates need to be revised downwards from current levels.”