International Business Machines Corporation


IBM

is scheduled to report first-quarter 2022 results on Apr 19, after the closing bell. In the last reported quarter, the New York-based integrated systems provider missed the Zacks Consensus Estimate by 4 cents. The company is expected to have recorded lower aggregate revenues year over year due to a challenging macroeconomic environment and softness in traditional businesses despite strength in the hybrid cloud business.

Factors at Play

During the first quarter, IBM launched enhanced data security features across hybrid and multi-cloud environments to thwart the growing menace of cyberattacks and strengthen cyber resiliency. The Key Management Services like IBM Key Protect for IBM Cloud or IBM Cloud Hyper Protect Crypto Services offer full encryption visibility and essential control over sensitive data. This industry-first cloud service will help business enterprises mitigate risks to data safety in multi-cloud setup with zero trust security architectures and securely manage encryption keys with a single point of control, including across other public clouds.

IBM also introduced a series of new capabilities designed to modernize applications across hybrid cloud environments to help clients accelerate digital transformation. These include plans to deliver IBM Z as-a-service on IBM Cloud for development and test, as well as additional tools for developing hybrid applications. These are likely to have driven the top-line growth in the Software segment.

During the first quarter, IBM implemented a Vehicle Management System on SAP S/4HANA at Mitsubishi Motors Philippines Corporation as part of the automaker’s digital transformation journey. SAP S/4HANA is an enterprise resource planning system that allows organizations to create custom roadmaps to reduce costs and improve business results. These are likely to have driven incremental revenues in the Consulting segment.

In addition, IBM inked a three-year deal with HSBC Bank to explore quantum computing applications within the gamut of financial services. Per the agreement, HSBC will join the IBM Quantum Accelerator program that will offer it in-depth knowhow of the quantum computing systems applications within the banking domain. The deal is likely to sow the seeds for future applications and technological innovations within the broader financial industry to reduce the risks of fraudulent transactions. This is likely to be reflected in the Financing segment revenues in the upcoming results.

However, escalating expenses directed toward cloud platform development amid intense competition in the cloud space are likely to have eroded its margins. Moreover, the company is expected to have recorded lower revenues owing to challenging macroeconomic conditions induced by the Russia-Ukraine War and consequent volatility in oil prices.

The Zacks Consensus Estimate for total revenues for the company stands at $13,734 million. It generated revenues of $17,730 million in the prior-year quarter. The consensus mark for earnings is currently pegged at $1.35 per share, indicating a sharp decline from $1.77 reported in the year-earlier quarter.

Key Developments in Q1

During the quarter, IBM inked a definitive agreement to acquire Envizi for an undisclosed amount to complement its sustained investments in AI capabilities and enable diverse firms to achieve sustainable business goals and environmental objectives. Based in Australia, Envizi operates as a premier data and analytics software provider for environmental performance management. IBM intends to integrate Envizi’s software with its Maximo asset management solutions, Sterling supply chain solutions and Environmental Intelligence Suite to help firms create more resilient businesses, sustainable operations and supply chains by generating automated feedback. The Envizi software will be available as a SaaS solution and will operate in multi-cloud environments.

IBM also inked a definitive agreement to acquire Neudesic to complement its hybrid cloud growth strategy by augmenting its multi-cloud service capabilities and accelerating digital transformation for clients. Headquartered in Irvine, CA, Neudesic offers a plethora of digital transformation services across advisory, application development, cloud migration, DevOps, integration, data engineering, data visualization and hyper-automation. The transaction is likely to extend IBM Consulting’s certifications across the hybrid cloud ecosystem and bring on board deep Microsoft Azure cloud, data engineering and data analytics expertise. This, in turn, will likely facilitate the digital transformation of clients and improve their operational agility through application development, modernization and higher data capabilities.

Earnings Whispers

Our proven model does not predict 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 not the case here.

Earnings ESP:

Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%, with both pegged at $1.35. 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.

Stocks to Consider

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

Microsoft Corporation


MSFT

is set to release quarterly numbers on Apr 26. It has an Earnings ESP of +0.03% and a Zacks Rank #3. You can see


the complete list of today’s Zacks #1 Rank stocks here


.

The Earnings ESP for

Nokia Corporation


NOK

is +28.57% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Apr 28.

The Earnings ESP for

Apple Inc.


AAPL

is +1.78% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Apr 28.

Stay on top of upcoming earnings announcements with the

Zacks Earnings Calendar

.

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