International Business Machines Corp. (IBM) Earnings Preview

International Business Machines Corp. (IBM) Earnings Preview

International Business Machines is scheduled to report its financial results for the first quarter of 2015 after the closing of the market trading today, April 20.  IBM’s stock price is up nearly 3% $165.44 per share, a few hours prior to its earnings release today, April 20.

Analysts at Thomson Reuters estimated that IBM will report earnings of $2.82 per share on $19.73 billion in revenue for the first quarter. IBM posted $2.68 in earnings per share on $22.48 billion in revenue in the same period a year ago.

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IBM investors should expect strong pressure on revenues

IBM investors should expect strong pressure on the company revenues due to currency headwinds, according to Peter Wahlstrom, director of technology media at Morningstar.

“Everyone’s going to be looking past revenue because the company has at least a 7 percent [foreign exchange] headwind. And when you dive into a couple of the different segments for IBM, each one them is going to feel pressure, whether it’s on the services side, the software side or the hardware side,” said Wahlstrom.

IBM core business still under pressure

During an interview with CNBC, Wahlstrom noted that the core business of IBM– hardware and software are still under pressure from its migration into cloud computing.

According to Wahlstrom, “As the cloud continues to gain adaption and traction in the marketplace, there’s the risk that the level of complexity actually reduces and there’s no need or less need for IBM’s services, hardware and software.”

When it comes to IBM’s $3 billion investment on the Internet of Things (IoT), Wahlstrom perceives a bright future for the tech giant. He added that it would take some time for the company to generate profits for its investments.

Wahlstrom said, “It should have a pretty decent value proposition in our view. However, it’s going to take some time for some of the [Internet of Things] initiatives to really make it in the numbers.”

He also noted that the current stock price of IBM is fundamentally undervalued. It would take time for the stock to normalize. He said, “You’d need to see an acceleration in the strategic initiatives over the next couple of years to get the stock moving.”

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