Earnings preview: Can IBM beat the Street?

Posted Jul 17th 2008 9:35AM by Steven Mallas
Filed under: Earnings Reports, Forecasts, Microsoft (MSFT), Dell (DELL), Hewlett-Packard (HPQ), International Business Machines (IBM)

Classic blue-chip tech company IBM (NYSE: IBM), whose colleagues include Dell (NASDAQ: DELL), Microsoft (NASDAQ: MSFT) and Hewlett-Packard (NYSE: HPQ), is due to report earnings on Thursday after the market closes up shop. What are investors looking for? Growth, of course. Should they expect it?

Well, according to Trey Thoelcke's earnings data, Wall Street is looking for IBM to deliver earnings per share around the $1.82 mark for the second quarter. Revenues should be near $25.9 billion. If Big Blue hits both of these numbers, it would show that the company is coming along fine and that the current level of the stock price is justified. Of course, Wall Street doesn't want IBM to merely hit those numbers. Oh no, that would be too easy. Wall Street wants IBM to beat those expectations. In terms of the bottom line, there is positive recent history for an earnings beat. The company handily beat estimates in the last two quarters, and met expectations in the two quarters previous to that time frame.

Will the company beat expectations? I think it will. The momentum seems to be favorable for such an outcome. In fact, in a relative sense, the stock isn't signaling a terrible report by any stretch of the imagination. The 52-week low is $97.04 and the 52-week high is $129.99. IBM closed up on Wednesday over 2% to a share price of $125.94. Doesn't sound like the market is worried, does it?

Of course, yesterday was a good day overall. Nevertheless, I think all signs point to a relatively nice report. Investors will be watching for how management views the current economic conditions and how IBM can cope. Again, though, if you believe stock prices send messages, then take a look at how strong IBM's shares have been during the equities meltdown. There's something to be said for the price performance and the earnings expectations.

IBM isn't on my watch list, but hey, if you want to throw it on yours, be my guest, I wouldn't argue against it. I'd be careful about buying before the company issues its report; bad timing is not a good thing in this market. But I think IBM's second-quarter stats will show that Big Blue and its business is fine, and that the company will be finding more opportunities for growth going forward.

Disclosure: I don't own any company mentioned; positions can change at any time.

Tags: Dell, earnings preview, earnings season, EarningsPreview, EarningsSeason, featured, hewlett-packard, HPQ, IBM, Microsoft, MSFT