IBM Revenue Estimates Look Too High in the Face of ‘Macro Headwinds,’ Says Analyst

4Q19 Results are not going to be bad.

https://www.barrons.com/articles/ibm-stock-revenue-estimates-too-high-in-the-face-of-macro-headwinds-51578929326

International Business Machines stock is trading modestly lower Monday after an analyst downgrade.

Evercore ISI analyst Amit Daryanani reduced his rating on IBM stock (ticker: IBM) to In Line from Outperform, while trimming his price target on the tech giant’s shares to $145 from $160. His view: Street revenue estimates are too high given a backdrop of soft enterprise technology spending.

The analyst writes in a research note that IBM faces a combination of both “macro headwinds” and a “difficult” second-half setup “that warrants incremental caution.”

With IBM due to report fourth-quarter results next week, he sees risk to guidance given a backdrop of cautious comments on enterprise sales from peers such as Cisco Systems (CSCO) and Dell Technologies (DELL).

Daryanani also worries that consensus revenue estimates calling for IBM to grow 2020 revenue by 3% could be too high—he notes that would suggest organic growth of 1% to 2% not counting the company’s recent Red Hat acquisition, a level he thinks is optimistic given peer comments on the industry.

Street consensus calls for fourth-quarter earnings per share of $4.69 on revenue of $21.64 billion. For all of 2020, the Street consensus estimates are for EPS of $13.31 on revenue of $79.5 billion. The Evercore analyst models fourth-quarter EPS of $4.70 on revenue of $21.54 billion, and for 2020, EPS of $13.20 on revenue of $79.2 billion.

Daryanani also comments that higher net leverage after the Red Hat deal limits the company’s ability to repurchase shares “and could keep investors at bay.”

While IBM remains an “appealing asset” given growth in the market for hybrid cloud computing, and a dividend yield above 4%, “skewed expectations” for the fourth quarter and 2020 “create downside risk to Street estimates and keep the stock rangebound.”

IBM stock in early trading Monday is down 0.7%, to $135.80.

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We will learn this week if the Redhat purchase is paying dividends. I wouldn’t hold your breath. Katy (the strongest IBM bull on Wall Street) from Morgan pretty much put the growth idea to bed with her revision Katy essentially said Ginni’s strategy is failing, and that the current management team has to go. IBM take the hint, and get on with it. Even if you pull a rabbit out of the 4th q hat, it’s a given on Wall Street that the current management team has lost all credibility, and is viewed as inept Change is needed, and Wall Street is done with IBM until it gets it. Where have we seen this story before. Microsoft rings a bell

sure

Q419 results will be stellar. IBM is the leader in the hybrid cloud, second to none. We are in chapter two of the cloud journey, this is where we dominate.

Due to the way IBM breaks down the numbers (and we all know why these do this), you don't have a clue how these different areas revenue is made up. Typically these areas are crammed full of legacy products which are actually generating steady revenue and decent profit. These are the things that prop up the new IBM initiatives. Without them, the numbers in these respect growth initiatives would be totally dismal. So I hesitate to call "cognitive" a success story by any stretch.

@12ZlQQoh-1rte "Yes will will suffer a revenue shortfall fall, but profits will soar"

This is spot on. In order for growth to resume, IBM must first get a lot smaller. Sell off the legacy businesses and use the proceeds to invest in the businesses of the future. But if you continue to wait there won't be anything left to sell, just rip the damn bandaid off now.

1yyp. You ask is IBM a growth story. Depends on where you look. I would say Cognitive is a growth story. (they have AI, LINUX, middleware, and ways to mine legacy databases). All in all a good story and if managed well it should grow. TPP is getting long in the tooth and management should think about spinning that off. GTS mostly not. It was born under Gerstner (your mess for less) and it has run its course. India pretty much fills this void due to lower labor rates. IBM continues to think they can automate this to make it efficient, but if IBM can do that, so can Wipro, Tata, etc etc. TSS most likely shouldn’t be under GTS, but rather under systems where they play. Cloud is the growth part of GTS if IBM is reporting them accurately. The margins may be low, but at least they are growing. All in all GTS needs to be restructured and most of it spunoff. Systems division is boom and bust. It cycles on HW innovation and is captured by the business cycle. Proprietary OS’s are gold. If you can accept that, you can build a profitable model, especially since Z and Power are unique. TSS is again a function of the innovation, but education for what you are working on dovetails nicely here. (NOTE if you don’t innovate, you die). Storage is going commodity, so do what you will with that. Finally GBS mostly is a growth story. You have to manage your consultants properly, but there is always a business need for “experts” who can guide you. Place them into deep pockets Fortune 500 customers and they can guide your customers toward your HW, SW, and services. App management is flat, but a little innovation here could fix that, and GPS is a rounding error. All in all GTS is the weak sister, and IBM has to address that portion of the business badly. It was born under Gerstner, and has run its course. Time for it to go

You have to look at the bigger picture. Looking at one quarter is not useful. IBM over the last 10 years has being on a revenue decline. So ask yourself is this is a company in growth?

Granted that GBS has its issues, which IBM division doesn't? By 2018 financials GBS grew 2.9%, or 2% adjusted for currency, a 2% growth is a big deal for IBM these days.

Everyone and that translates to EVERYONE knows what is wrong with IBM. They have held onto stale business operations whose time has past for far too long. IBM’s CFO announces it every quarter (in businesses we choose to serve, low profit margin businesses, OEM business segments, etc etc). You and I can give the 4th quarter guidance right now. “business head winds impacted our slow growing legacy operations”. The Executive team is dedicated to managing the low margin businesses to improve their profitability. How many times do we have to hear this? Wall Street knows the answers and has moved on. They will not take another look at IBM until a new exec management team is announced, and IBM does what they need to do, which is spinoff/restructure the legacy businesses (We are looking at you Services) to optimize profits. DUMP the stale/businesses that time has passed by. Yes will will suffer a revenue shortfall fall, but profits will soar and Wall Street will take an interest in you again.

@1mxe that made me chuckle...

"Macro headwinds" translates to "it's not our fault"

"Macro headwinds" translates to "it's not our fault"

Put the lipstick on the extremely bloated GBS pig and sell already.

Lol Redhat does it again

J1b. IBM pre-announced in 3rd q, that GTS revenue was going to be down in 4th q. I believe it was something close to 7%. Redhat revenue due to the buyout had to be recognized over the course of the deferred contracts (36 months). Either way you are correct. They are bleeding faster than they are re-generating. They have to make some very very tough choices as wall street has given up on the Ginni strategy of “CAMSS and it’s going to be great”. The death of 1000 cuts continues, and IBM can’t get ahead of the bleeding. It’s time to dump the low margin services businesses, cut the Exec (band 10 and above) overhead, exit the commodity trending businesses, and decide if investing 5 billion a year in the IBM labs is paying off. Other than that, it’s smooth sailing ahead.

2018 revenue was $79.6M. With the Q4 forecast from the analyst above, they're saying $77.0M for 2019. So explain this to me - despite two quarters of additional revenue from Red Hat and despite the bump in Q4 from the new Z, revenue will still be down almost $3M from 2018 - what would revenue have been if not for the RH acquisition and the new Z? IBM is shrinking faster than they can buy new revenue via acquisition.

4Q19 Results are going to be bad.

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IBM Revenue Estimates Look Too High in the Face of ‘Macro Headwinds,’ Says Analyst

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