IBM share price: 3 things to watch out for in its Q3 earnings

The computer technology and IT consulting firm will release its Q3 results on Wednesday, with investors eager for an update following its transformational acquisition of Red Hat.

IBM is set to unveil its Q3 earnings on Wednesday, so IG has broken down the key things to watch out for ahead of its latest trading update.

Investors keen to see how Red Hat is settling in at IBM

IBM acquired open-source software company Red Hat in July for $34 billion – making it the largest deal in the company’s history.

In the company’s upcoming Q3 earnings, all eyes will be firmly on IBM’s latest purchase, with the century-old IT firm taking a major bet on hybrid cloud technology to reinvigorate its business and halt a recent slump in sales.

‘This company has had to be reinvented many times,” IBM CEO Ginni Rometty told Bloomberg in September. ‘It’s something many other companies have yet to face.’

‘It is one thing to put out new products, but it is something else when the competitive landscape attacks your core business models and you have to develop a new one,’ she added.

Analysts mixed about IBM

Wall Street analysts forecast IBM will record Q3 adjusted earnings of $2.67 a share and $18.2 billion in revenue, down from $18.8 billion recorded in the same period last year.

Ahead of its earnings, Morgan Stanley analyst Katy Huberty reiterated her ‘overweight’ rating for the stock and issued a $170 target price. IBM is trading at $143 as of 18:35 GMT on Tuesday.

‘Investors demand value-oriented stocks is rising,’ Huberty said in a note.

‘IBM is an attractive candidate in light of easier comps, higher IT services exposure [and] mainframe cycle limiting est. risk,’ she added.

However, other analysts are less optimistic, with 32% rating the stock a ‘buy’, with 59% issuing ‘hold’ ratings, according to information compiled by FactSet. The average target price for the stock is also much lower than that of Morgan Stanley at $153.79 a share.

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IBM on course to hit full-year guidance

In its Q2 earnings, IBM said that it remains firmly on track to achieve GAAP diluted earnings per share of at least $12.45, along with free cash flow of around $12 billion.

‘We maintained our momentum in the second quarter, again expanding gross profit margin and growing free cash flow, driven to a great extend by our increasing mix of high-value offerings for clients,' IBM CFO James Kavanaugh said.

Investors will be eager to see if IBM is able to exceed analysts’ expectations in its latest set of results, as well as be gauging the impact of its acquisition of Red Hat on revenue growth.


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