IBM Earnings Preview: First Quarter 2009

IBM [[IBM]] is expected to report first quarter 2009 results after the market closes on Monday, April 20. Based on our analysis, we at are expecting IBM to report inline results that meet Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $22.38 billion and EPS of $1.66. This would represent a 9% decline in revenues from last year’s $24.50 billion in the same period. The current analyst consensus estimates calls for revenues of $22.55 billion and $1.66 EPS. On January 20, the company provided full year 2009 EPS guidance of “at least $9.20”.


Last month, Oracle [[ORCL]] posted better than expected results, which we believe bodes well for IBM. Companies appear to be slow in cutting back on IT budgets despite the macro environment. Forrester Research is expecting only a 3.1% decline in IT spending in 2009. That should bode well for IBM’s first quarter results, but we feel that IT budgets will be cut more aggressively as the year progresses.


For the full year 2009, Wall Street is already discounting the company’s bullish EPS guidance of at least $9.20. The current consensus expectation now stands at $9.03 which is not shabby at all in this environment, but may still be overly optimistic unless we see clear signs of improvement in the economy in the second half of this year.


Share Performance

IBM’s shares are up over 15% since the beginning of the year, making it the best performing Dow component of 2009 (at least so far). In 2008, IBM’s shares fell only 22%, as it outperformed the 34% decline in the Dow Jones index.



Shares are now trading at 10x consensus 2010 EPS estimates. This is slightly below the relative valuations of their peer group. While it appears that IBM’s shares are still attractively valued, we believe there remains downside risk to their 2009 estimates.


Recommendation: Hold with a $100 price target.


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