Q3 Earnings Impact: IBM Still Spending To Get Leaner, Rethink Future

IBM IBM is among companies at the vanguard of most major data-collecting technology in the world since its inception in 1911. Now with artificial intelligence system Watson and cloud-computing efforts, the blue-chip firm is doing it again, say most industry analysts. But the big question is whether investors have the patience to travel the long path of transition with IBM; revenue and earnings have spiraled down for 13 straight quarters.

Wall Street expects more top- and bottom-line deterioration when the multinational giant turns in its Q3 results after the market closes Monday. Analysts polled by Thomson Reuters peg earnings per share at $3.30, down 10% from the same period last year on sales that likely fell 12.5% to $19.61 billion. However, Wall Street may be used to baking in such results; in Q2, IBM beat earnings expectations.

Analysts attribute much of the big-dollar drop to Big Blue’s strategic priorities to shed hardware units while realigning its corporate mission on data analytics, cloud computing, mobile computing, and security. It’s also jumped into the health care industry with technology that industry analysts expect could be big assistance to doctors in diagnosing and treating illnesses.

Analysts also point out that the firm’s results are derived mostly from sales abroad. So, like those recorded by most multinationals, results could be dented by a stronger dollar’s impact on foreign currency translation from profits earned around the world.

With a few bumps up here and there, IBM stock has traded mostly lower throughout the last 52 weeks, off nearly 19% since last October. That’s been the overall trajectory of the stock since March of 2013 (figure 1). Since hitting a five-year high of $215.90 then, the price has dropped some 30%. Meanwhile, the Dow Jones Industrial Average has advanced nearly 19%.

The short-term options market is pricing in the chance of a 5.4% move in either direction for shares around this release, according to the thinkorswim® platform’s Market Maker Move indicator.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2015 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.