Shares of International Business Machines (IBM) are down $3.63, or 2%, at $186.90, trading roughly in line with the broader market as the company moves toward its Q3 report this afternoon, after market close.
The Street is modeling $26.26 billion in revenue and $3.22 per share in profit.
All eyes will be on the yearly outlook, as IBM has increased its 2011 estimate two quarters in a row now, raising the EPS projection to “at least $13.25” per share when it reported Q2 results back in mid-July. The company has also set a 2015 goal for “at least $20″ per share in profit.
Here are some things the Street is writing:
Mark Moskowitz, JP Morgan: reiterates an Overweight rating on IBM shares and a $205 price target. The company is likely to weather the global economic woes better than most, and it’s in the “Big Four” of tech, along with EMC (EMC), NetApp (NTAP), and Apple (AAPL) in that regard. He’s expecting 13% software growth, and the broader server business should show that it is holding up despite a slowing in the mainframe business. “Often, there is much noise related to the services signings number. (Our estimate is $12.1 billion.) We think that the better gauge is to evaluate the presence of any wide deltas in services backlog growth relative to services revenue growth on a year over year basis. If there are meaningful gaps between the two growth rates, then there could be cause for pause. If not, then there should be no noise after today�s print.”
Keith Bachman, BMO Capital Markets: Reiterates an Outperform rating, while raising his price target to $195 from $190. Bachman writes that IBM “had a good October quarter,” and estimates will keep gradually moving higher,” even though he thinks estimates are too high for the current quarter. Bachman raised his Q3 revenue estimate to $26.4 billion from a prior $26.27 billion, and raised his EPS estimate to $3.29 from $3.22. Going forward, comparisons get tougher for IBM, he thinks: “IBM�s hardware comparisons will likely be very difficult for the next four quarters, and the P and mainframes have both had the benefit of strong product cycles over the past year. We project 2% y/y revenue growth in CY12 compared with 9% in CY11 and 11% in CY10.” Nevertheless, despite cutting revenue assumptions in 2012 to $110.9 billion from $111.1 billion, he now sees higher profit, at $15 per share in 2012 versus a prior $14.60 estimate.
Amit Daryanani, RBC Capital Markets: Reiterates a Sector Perform rating and a $200 price target. Signings will be “slowing down” this quarter, but there’s still potential for upside “due to market share gains.” He believes 2011 full-year outlook will be reiterated by the company, “which should be a positive given the volatile macroeconomic environment.” IBM usually does more buybacks the first half of the year. If they get “aggressive” this latter half of the year, “we believe this would increase our non-GAAP EPS estimate by a few cents.” Daryanani is modeling $27 billion in revenue and $3.25 per share in EPS.
Toni Sacconaghi, Sanford Bernstein: Reiterates a Market Perform rating and a $162 price target. U.S. corporate demand is “stable,” but his “checks” suggest uncertainty “most notably about demand in Europe, in the Government segment and among Financial Institutions.” The dollar has strengthened against the Euro since July, when he last compiled estimates, causing some headwind to IBM’s revenue growth. Hence, he cut his revenue estimate for the quarter to $26.5 billion from $26.7 billion. He expects the company to turn in $3.31 per share in profit, assuming $3.5 billion in share repurchases.
Maynard Um, UBS: Reiterates a Neutral rating and a $180 price target. He’s modeling $26.8 billion in revenue for the quarter and $3.25 per share in profit. Services signings will probably beat his $13 billion estimate, he writes. And revenue may be helped somewhat by having sold some intellectual property to Google (GOOG) during the quarter. “We believe IBM could modestly raise its FY11 EPS guidance and will likely maintain its long-term EPS target of $20+.”
And Brian Alexander of Raymond James, who follows the IT distributors such as Arrow Electronics (ARW), writes today that his checks suggest computing demand is “moderating” and that channel sales were “more muted and volatile than normal, particularly around the data center.” “Checks on IBM were the weakest we have heard in recent memory,” he writes.
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