Why so sanguine? Intel is certainly part of the equation. The world's largest chipmaker reported stellar earnings last week with better revenue, better profits and dramatically better margins as compared against Street expectations.
The underlying message is that consumers have certainly begun spending again and that only now have we begun to see the enterprise do the same.
The Windows 7 upgrade cycle from Microsoft has been very strong, and that's been good for PC sales, but not necessarily something that would affect IBM. Instead, when Office 2010 comes to market from Microsoft in the next several weeks, that could be the catalyst for corporate clients to start spending in all kinds of ways.
While IBM might be in a pitched battle with the likes of Hewlett-Packard and Cisco, IBM has been more than able of holding its own and yet it's stock continues to under-perform. Sure, IBM shares are once again knocking up against a 52-week high, but after the year the market suffered last year, a 52-week high isn't a fair measure of a company's real value nowadays.
Fact is, IBM is trading at 13 times next year's earnings, and only 11 times this year's. Cheap. Plain and simple, especially when balanced against the growth this company seems to be enjoying.
This time around, the Street is looking for $1.93 a share on $22.75 billion in revenue, up 5 percent and 14 percent respectively. No slouch as far as performance is concerned. And while the company's Q1 is normally pretty dry, there will be lots of attention paid to IBM's full year commentary.
In January, the company took its EPS range from $10 to $11 a share for FY 2010 to "at least $11 a share." I'd be surprised if the company changed that outlook tonight, but it could offer commentary suggesting that a raise in EPS during its next earnings report could happen.
When IBM's numbers are released, I'll go through the company's various business segments, and I'll be comparing its actual performance to Street Account's expectations: Technology Services should come in around $9.21 billion; Business Services at $4.42 billion; Software, $5 billion; Systems/Technology, $3.46 billion; Financing $589 million; Signings, $13.56 billion; Gross Margin should be at 44.1 percent. We'll see how much time I have when these numbers cross the tape, but those are the areas on which I'll focus.
For guidance, Thomson Reuters expects an 11 percent rise in EPS to $2.58 a share on a 4 percent increase in revenue to $24.2 billion.
It just seems based on the company's last few quarters, and certainly the trends ahead for IBM's key sectors, that this company is not merely sitting pretty; it's inexpensively sitting pretty.
Shares are rallying today, but only modestly. If this company can merely beat, and keep guidance stable, shares might be off to the races. If the company can beat and raise, it'll be rally time, big time. If IBM meets expectations, and leaves guidance alone, shares won't do much. I haven't talked to a single person who expects IBM to miss. Not to say it won't happen, or can't happen, but that's the kind of negative surprise that could send shockwaves through broader Wall Street.
IBM should continue the sentiment started by Intel last week. And what IBM says bodes well for Microsoft on Thursday and other big cap tech between now and then. Big Blue casts a big shadow, but tonight's earnings should be all about bright sunny skies, and warm, comfortable investor days ahead.
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