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Can IBM Keep Its Earnings Streak Alive This Earnings Season?


International Business Machines Corporation IBM is set to report first-quarter fiscal 2018 results on Apr 17 after the closing bell. Notably, the company beat the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 2.83%.

IBM is well poised to benefit from its growing presence in the enterprise artificial intelligence (AI) market on an increasing clientele. Strength in cloud, security and analytics as well as cost savings are expected to drive company’s top and bottom-line. Further, expanding footprint in the rapidly growing blockchain market is a positive.

What to Expect?

For first-quarter fiscal 2018, the Zacks Consensus Estimate for IBM’s earnings per share and total revenues are projected to be $2.39 and $18.71 billion representing an increase of 0.4% and 3.1%, respectively, from first-quarter fiscal 2017.

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

International Business Machines Corporation Price, Consensus and EPS Surprise

International Business Machines Corporation Price, Consensus and EPS Surprise | International Business Machines Corporation Quote

Factors to Impact Q1 Results

IBM’s significant investments in “Strategic Imperatives” — cloud computing, mobile, cognitive technologies and AI is a tailwind.

The company recently unveiled Watson Data Kits that is aimed at accelerating AI development. The first of the lot will cater to food, travel and transportation industries. Notably, IBM’s new Watson Data Kits provide a sorted ready-to-use data platform to the companies accelerating their AI processes.

Further, IBM also released an application building cum machine learning platform, Cloud Private for Data, on its Cloud Private platform. This move of IBM will augment artificial AI accessibility across companies. The clients will benefit from the new platform’s data security feature which is a positive for the company.

IBM is also involved in a number of Blockchain initiatives as the technology gains rapid mainstream adoption. The company is currently the dominant player in the blockchain market.

To extend its dominance in blockchain technology, IBM joined forces with the largest container shipping firm in the world, A.P. Moller-Maersk. The partnership is intended to deliver a secure and efficient industry-wide trading platform using blockchain technology. Further, this platform will deliver much needed innovation in the ocean shipping industry and aid IBM in branching out its foothold in this space, bolstering its top-line.

Further, the Beijing Institute of Technology selected the IBM LinuxONE platform to run their blockchain solution. This will further expand its dominance in blockchain market.

IBM is focusing on cloud computing which is evident from the fact that it continues to open data centers aggressively. Globally, the company owns approximately 60 data centers across 19 countries.

Cloud is included in the Cognitive Solutions (including Watson) and Global Business Services (“GBS”). Notably, cloud revenues surged 27% from the year-ago quarter in the last reported quarter. Security revenues have advanced 127%. Growth can be attributed to robust performance of security software solutions and strong demand for the pervasive encryption capabilities in new z14 mainframe.

Moreover, Strategic Imperatives (cloud, analytics, mobility and security) grew 14% at constant currency from the year-ago quarter.

Notably, for the first quarter, the Zacks Consensus Estimate for revenues from Cognitive Solutions and GBS are pegged at $4.884 billion and $4.143, up 2.2% and 1.2%, respectively, from the actual figure reported in the prior-year quarter.

Zacks Rank and Stocks to Consider

IBM carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are Western Digital Corporation WDC, Applied Materials, Inc. AMAT and Amazon.com, Inc. AMZN, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Western Digital, Applied Materials and Amazon.com have a long-term expected earnings growth rate of 19%, 13.3% and 26.8% respectively.

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