IBM Reports Its Results on Monday. Tech Earnings Season Is Starting.

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The IBM logo is shown in the Garibaldi-Porta Nuova district of Milan.

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The midyear tech earnings season kicks off Monday afternoon with results for the June quarter from IBM.

The consensus view on Wall Street is that IBM (ticker: IBM) will report revenue of $18.3 billion, up about 3% from a year ago, with profits of $2.29 a share. Like many other tech companies this quarter, Big Blue’s results will benefit from comparisons with a low base. Revenues fell 5.4% in the year-ago quarter as U.S. gross domestic product fell 34%.

Expectations for the September quarter are that revenue will be $17.6 billion, with profits of $2.59 a share. 

IBM’s business should benefit from a pickup in enterprise spending on hardware, software, and services. The research firm Gartner this week projected 2021 information-technology spending will jump 8.6%, a sharp improvement from the 0.9% increase in 2020.

Meanwhile, the Street awaits the financial details of the company’s pending spinoff of its managed information services business, now called Kyndyl. The company has said it expects to complete the transaction before year-end. 

In a research note previewing the June quarter  results, Morgan Stanley analyst Katy Huberty wrote that she expects results for the quarter to be in line with Street estimates. She is upbeat on CEO Arvind Krishina’s strategy to focus on sustainable growth, saying the stock is positioned for better performance in 2022.

A recent internal email outage at the company isn’t likely to materially affect results, Huberty said. She also sees a bigger-than-forecast benefit from foreign exchange factors. She said she expects a 5.1% currency-related boost to revenues, above the 3% management has told investors to expect.

Next year, Huberty said, IBM will be entering a new mainframe cycle, and observes that “stocks historically begin to outperform after spin transactions.” She also noted that institutional ownership in IBM remains at all-time lows.

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Huberty kept an Equal Weight rating on the stock with a target of $152 for the price.

Evercore ISI analyst Amit Daryanani likewise expects results to be in line with expectation. He said the biggest focus on the post-earnings call will be a recent flurry of management changes at the company, including the exit of President Jim Whitehurst. He told Barron’s in a recent interview that he wants to find a CEO role. 

As for the quarter, Daryanani noted that other enterprise IT vendors have been reporting strong results, pointing to the latest numbers from both Oracle and Accenture. The postpandemic recovery should boost demand from markets like retail and travel, he said, noting that job postings at IBM saw a large uptick in May on both a year-over-year and sequential basis.

Daryanani kept an In Line rating on the stock with a target price of $150.

On Friday, IBM shares were off about 0.8%, to $139.38. The stock is up 15% year to date.

Write to Eric J. Savitz at eric.savitz@barrons.com

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