Will Contraction in Revenues Affect IBM's Earnings in Q4?

Zacks Equity Research

January 19, 2023 at 10:39 AM·4 min read

International Business Machines Corporation IBM is scheduled to report fourth-quarter 2022 results on Jan 25, after the closing bell. In the last reported quarter, the New York-based integrated systems provider beat the Zacks Consensus Estimate by 3 cents. The company is expected to have recorded lower aggregate revenues year over year owing to a challenging macroeconomic environment and softness in traditional businesses.

Factors at Play

During the fourth quarter, IBM collaborated with Vodafone Group to focus more on quantum-safe cybersecurity issues. Leveraging cloud access to IBM's advanced quantum computing systems and its industry-leading quantum expertise, Vodafone aims to help validate and progress potential quantum use cases in telecommunications. The company launched new software to help enterprises break down data and analytics silos to facilitate faster data-driven decisions and navigate unpredictable disruptions. These are likely to have driven the top-line growth in the Software segment.

During the quarter, IBM partnered with the Cloud Security Alliance -- a global not-for-profit firm to help ensure secured cloud computing -- to further advance security and risk management of cloud within financial services. Through the IBM Cloud Framework for Financial Services, it aims to help clients mitigate risk, tackle ongoing regulations and accelerate cloud adoption. These are likely to have driven incremental revenues in the Financing segment.

During the to-be-reported quarter, IBM also inked a partnership with Rapidus to develop logic scaling technology as part of Japan's initiatives to become a global leader in semiconductor research, development and manufacturing. Per the agreement, Rapidus and IBM will work on IBM's breakthrough 2 nanometer (nm) node technology for innovative product development initiatives.

The company launched 400 Qubit-Plus quantum processor that reportedly boasts the largest qubit count of any IBM quantum processor. The processor has the potential to run complex quantum computations well beyond the computational capability of any classical computer. Such state-of-the-art products are likely to have translated into higher revenues in the Infrastructure segment.

However, escalating expenses toward cloud platform development amid intense competition in the cloud space are likely to have eroded its margins. In addition, the company is likely to have recorded lower revenues in the Consulting segment owing to challenging macroeconomic conditions and rising inflationary pressures.

The Zacks Consensus Estimate for total revenues for the company stands at $15,487 million. It generated revenues of $16,695 million in the prior-year quarter. The consensus mark for earnings is currently pegged at $3.60 per share, indicating an improvement from $3.35 in the year-earlier quarter.

Earnings Whispers

Our proven model does not predict an earnings beat for IBM this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%, with both pegged at $3.57. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

International Business Machines Corporation Price and EPS Surprise

International Business Machines Corporation price-eps-surprise | International Business Machines Corporation Quote

Zacks Rank: IBM currently has a Zacks Rank #3.

Stocks to Consider

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

Verizon Communications Inc. VZ is set to release quarterly numbers on Feb 24. It has an Earnings ESP of +0.42% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for T-Mobile US, Inc. TMUS is +3.00% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 1.

The Earnings ESP for Meta Platforms, Inc. META is +10.48% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 1.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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International Business Machines Corporation (IBM) : Free Stock Analysis Report

Verizon Communications Inc. (VZ) : Free Stock Analysis Report

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Factors at Play

Earnings Whispers

International Business Machines Corporation Price and EPS Surprise

Stocks to Consider

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