Is Trending Stock International Business Machines Corporation (IBM) a buy it now?

IBM (IBM) recently made Zacks.com’s most wanted stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.

Over the past month, shares of this technology and consulting company have returned -3.1%, compared to the -3.1% change in the Zacks S&P 500 composite. During this period, the industry Zacks Computer – Integrated Systems, of which IBM is a part, lost 3.9%. The key question now is: what could be the future direction of the title?

Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.

Revisions to earnings estimates

Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.

Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.

For the current quarter, IBM is expected to post earnings of $1.88 per share, indicating a -25.4% change from the prior year quarter. The Zacks consensus estimate has remained unchanged for the past 30 days.

The current year earnings consensus estimate of $9.47 indicates a year-over-year change of +19.4%. This estimate has remained unchanged for the past 30 days.

For the next fiscal year, the consensus earnings estimate of $10.05 indicates a change of +6.2% from what IBM is expected to report a year ago. Over the past month, the estimate has remained unchanged.

With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. . Due to the magnitude of the recent change in the consensus estimate, along with three other factors related to earnings estimates, IBM is ranked Zacks Rank #4 (sell).

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Expected revenue growth

While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.

In the case of IBM, the consensus sales estimate of $13.75 billion for the current quarter indicates a year-over-year change of -22%. Estimates of $59.9 billion and $61.2 billion for the current and next fiscal year indicate variations of -15.4% and +2.2%, respectively.

Latest reported results and history of surprises

IBM reported revenue of $15.54 billion in the latest quarter, representing a year-over-year change of -17.1%. EPS of $2.31 for the same period versus $2.33 a year ago.

Compared to the Zacks consensus estimate of $15.12 billion, reported revenue is a surprise +2.75%. The EPS surprise was +0.87%.

In the past four quarters, IBM has exceeded consensus EPS estimates three times. The company has exceeded consensus earnings estimates twice during this period.

Evaluation

No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.

Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values ​​help determine whether its stock is fairly priced, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of its price.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on.), which helps determine whether a stock is overvalued, correctly valued, or temporarily undervalued.

IBM is rated B on this front, indicating that it is trading at a discount to its peers. Click here to see values ​​for some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information about Zacks.com might help determine whether or not it’s worth paying attention to the market buzz about IBM. However, its Zacks No. 4 ranking suggests it may underperform the broader market in the near term.

Zacks names ‘only one best choice for doubling up’

From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.

It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could step in at any time.

This company could rival or surpass other recent Zacks stocks that are expected to double, such as Boston Beer Company which climbed +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year. Top >>

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International Business Machines Corporation (IBM): Free Inventory Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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