Can quarterly earnings boost IBM’s share price?

Last year was a tumultuous one for IBM’s [IBM] share price. The stock fell to its lowest value since 2009 when it closed at $90.99 on 23 March — a 28.5% drop from where it started the year.

Although IBM’s share price has recovered somewhat since, it hasn’t yet managed to reach its pre-slump peak of $156.76, at which it closed on 6 February. The closest it came was on 8 June when IBM’s share price closed at $132.08, which was just a 3.7% year-to-date increase at the time.

More recently, IBM’s share price closed at its third-highest value since the March sell-off when it reached an intraday high of $129.85 on 12 January, before closing at $129.21.

As of close on 19 January, IBM’s share price of $129.02 was up 4.1% since the start of 2021.

So, can investors expect a boost to IBM’s share price following its fourth-quarter earnings results on 21 January? 

How has IBM been performing?

When IBM announced its third-quarter results on 19 October it produced earnings per share (EPS) of $2.58. While this was down 3.7% year-over-year, the figures beat the Zacks Equity Research consensus estimate of $2.55 per share by 1.2% — marking the fourth consecutive quarter in which IBM surpassed analysts’ expectations.

Meanwhile, revenues for the quarter ended September 2020 came in at $17.56bn. This narrowly missed the Zacks consensus estimate by 0.3% and, compared to year-ago revenues of $18.03bn, marked a year-over-year drop of 2.6%.

“The strong performance of our cloud business, led by Red Hat, underscores the growing client adoption of our open hybrid cloud platform," Arvind Krishna, CEO of IBM, said in a statement released alongside the results, giving investors an idea of where the company’s attention is focused for strategic long-term growth.

"Separating the managed infrastructure services business creates a market-leading standalone company and further sharpens our focus on IBM's open hybrid cloud platform and AI capabilities. This will accelerate our growth strategy and better position IBM to seize the $1trn hybrid cloud opportunity.”

On 20 October, the day after the earnings release, IBM’s share price closed at $115.69 — 6.5% lower than the previous day’s trading session. The stock continued to fall over the next few days before closing at $105.13 on 28 October, down 17.5% for the year-to-date at the time.

Looking ahead to the next earnings release, analysts expect IBM to post an EPS of $1.77, which would mark a year-over-year decline of 62.4%. Revenues are expected to total $20.48bn, which would be a loss of just under 6% compared to the same time last year.

For the full year, Wall Street estimates IBM will produce earnings of $8.73 per share and revenues of $73.77bn, which would represent respective losses of 31.9% and 4.3%.

Is IBM a buy?

“IBM was one of the few big tech stocks that didn't rally hard in 2020. Sales had been slumping for years as the company tried to transform itself, and the [coronavirus] pandemic didn't help,” Timothy Green, wrote in The Motley Fool. “That transformation isn't yet complete, but the company is well-positioned to lead the hybrid cloud computing market.”

Among the 16 analysts polled by CNN Money, whose consensus rating of hold comes from a majority of nine, five rate the stock a buy and two rate it a sell. Meanwhile, Zacks has given the stock a consensus hold rating.

“IBM was one of the few big tech stocks that didn't rally hard in 2020. Sales had been slumping for years as the company tried to transform itself, and the [coronavirus] pandemic didn't help” - Timothy Green

Among the 14 analysts offering 12-month forecasts on IBM’s share price, CNN Money reports a median target of $139, with a high estimate of $165 and a low of $115. The median estimate would represent an 8.3% increase from IBM’s share price as of close on 15 January.

“Trading for less than 11 times the average analyst estimate for 2021 earnings and sporting a dividend yield over 5%, IBM should appeal to both value investors and dividend investors,” Green concluded.