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Can Solid Software Revenues Benefit IBM Earnings in Q4? – January 24, 2023


International Business Machines Corporation (IBM Free Report) is scheduled to report fourth-quarter 2022 results on Jan 25, after the closing bell. In the quarter, the company is likely to have recorded solid revenues from the Software segment due to increased adoption of its cloud services.

Factors at Play

The Software segment includes Hybrid Platform & Solutions comprising software services, Red Hat, automation and data & AI businesses and Transaction Processing.

During the fourth quarter, IBM collaborated with Sierra Space, a leading commercial space company, to develop the next generation of space technology and software platforms across the former’s range of space vehicles and infrastructure. These are likely to have driven the top-line growth in the Software segment.

The company launched new software to help enterprises break down data and analytics silos to facilitate faster data-driven decisions and navigate unpredictable disruptions. During the quarter, it unveiled the IBM Cloud for VMware as a Service – a combination of IBM’s hybrid cloud strategy and VMware capabilities – to help global clients modernize their workloads and expedite time to value in hybrid cloud environments.

In the to-be-reported quarter, IBM partnered with Bosch to work in unison to develop potential applications of quantum computing in the field of material science. The firms aim to explore how quantum technology will benefit a variety of industries and disciplines, including finance, chemistry and artificial intelligence through significant reductions of development time and operational costs. These initiatives are likely to be reflected in the upcoming segment results.

Key Developments in Q4

During fourth-quarter 2022, IBM inked an agreement to acquire Octo to establish one of the largest digital transformation partners to the federal government. The buyout of this U.S.-based IT modernization and digital transformation services provider will complement IBM’s existing strengths in this domain and augment its ability to better serve the federal agencies.

Overall Expectations

The Zacks Consensus Estimate for revenues from Software is pegged at $6,762 million.

The consensus Estimate for total revenues for the company stands at $15,548 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 predicts 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 perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.90%, with the former pegged at $3.67 and the latter at $3.60. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Other Stocks to Consider

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

Motorola Solutions Inc. (MSI Free Report) is set to release quarterly numbers on Feb 8. It has an Earnings ESP of +0.33% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Applied Materials Inc. (AMAT Free Report) is +0.17% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 15.

The Earnings ESP for Meta Platforms, Inc. (META Free Report) is +6.88% 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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