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How To Play 4 Top IT Hardware Names Pre-Earnings

How To Play 4 Top IT Hardware Names Pre-Earnings
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In a report published Tuesday, RBC Capital Markets analyst Amit Daryanani offered a preview for four IT hardware giants ahead of their respective earnings.

According to Daryanani, 2015 has been a volatile year for the IT hardware sector and the volatility will likely persist given sustained foreign exchange headwinds, a slowing PC market and accelerating cannibalization of the traditional storage market.

Apple: Remain Long

Daryanani noted that investors should remain long Apple Inc. (NASDAQ: AAPL) through the second quarter as his checks reveal iPhone demand remained strong through the March quarter. Moreover, the company should report numbers above the high-end of its $52 billion to $55 billion guided range.

Daryanani said that Apple's gross-margins could surprise on the upside due to yield efficiency, supply chain pricing, Apple Watch ramps (more of a benefit in the June quarter), a mix shift favoring iPhone 6 Plus and overall iPhone higher average selling prices benefits.

Shares remain Outperform rated with a $142 price target.

Related Link: Analyst Sees 'Strong Snapback In March' For Apple Sales

IBM: Mainframe Cycle Versus Secular Headwinds In Focus

Daryanani is expecting International Business Machines Corp. (NYSE: IBM) to continue outlining an "aggressive" shift towards a new business model with a focus on cloud and subscription revenue given the importance of this revenue stream for future growth.

In the near-term, Daryanani noted that IBM's revenues and earnings per share will see material foreign exchange headwinds versus the Street's expectations. The analyst said that for the March quarter, revenues should come in below expectations given an estimated foreign exchange headwind being 200 basis points higher than the company's guidance.

Shares remain Sector Perform rated with a $160 price target.

EMC: All About Acquisitions

Daryanani stated that EMC Corporation (NYSE: EMC) is expected to miss its March quarter in addition to lowering the bar for the full year 2015 due to foreign exchange headwinds. The analyst added that the VCE dilution will be front end-loaded in the first half of 2015.

From a demand basis, Daryanani thinks that the core EMC business will report inline results but gross-margins could remain muted due to a mix shift and a negative pricing behavior seen through the quarter.

Nevertheless, the analyst stated that EMC has the ability to grow faster than IT spend, eventually exhibiting double-digit earnings per share growth and earning and attractive valuation.

Shares remain Outperform rated with an unchanged $30 price target.

CDW: Defensive Play

According to Daryanani, CDW Corp (NASDAQ: CDW) is an attractive mid-cap asset for investors as the company is expected to report results that are better than anticipated.

Daryanani added that his checks show weakness in the sector is PC centric while retail has been "soft." However, Enterprise demand has remained healthy and will enable higher average selling prices and margins. In addition, the checks indicated stable pricing that should calm investor fears around price wars.

Shares remain Outperform rated with an unchanged $116 price target.

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