Computing behemoth IBM
IBM
is slated to report its Q1 2023 results on April 19th. We estimate that IBM’s revenue will come in at about $14.40 billion for the quarter, marginally ahead of the consensus estimate of about $14.35 billion and roughly flat versus last year. We estimate that earnings will stand at close to $1.26 per share, compared to a consensus of $1.27 per share. So, what are some of the trends that are likely to drive IBM’s earnings?
We expect IBM’s core software and services operations to be one of the key drivers of growth over Q1. The software segment, which accounted for a little over 40% of the company’s revenue last year, grew by about 8% in constant currency terms in Q4, driven by the Red Hat
RHT
and automation businesses. Red Hat, which was acquired in 2019 has been a key driver for IBM, given its large portfolio of open-source technology, its hybrid cloud platform, and its large developer community. Over the last quarter, IBM expanded Red Hat’s reach by signing new partnership agreements with Oracle
ORCL
and SAP. We will also be closely watching the performance of the Data & AI subsegment of the software business. With the success of the viral ChatGPT chatbot, investors are becoming more enthusiastic about the role AI could play in the economy and we will be looking for updates on IBM’s developments on that front.
We think IBM stock is likely to move sideways following its Q1 results. At the current market price of about $131 per share, IBM stock trades at just
just
under 14x consensus 2023 earnings. This makes the stock a reasonably good value pick in a market where investors are increasingly prioritizing earnings and cash flows. The company’s trailing dividend yield stands at about 5%. Moreover, IBM could also hold up reasonably well in the event of an economic downturn in the United States. CEO Arvind Krishna previously indicated that he expects technology-related spending to continue to expand despite fears over rising interest rates, inflation, and tightness in the labor markets. We value IBM stock at about $141 per share, roughly 8% ahead of the current market price. See our analysis IBM Valuation: Expensive or Cheap for more details on what’s driving our price estimate for IBM. Also, check out the analysis of IBM Revenue for more details on how IBM revenues are trending.
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