Shares of tech company International Business Machines (IBM) are up in today’s trading as investors await its Q3 earnings results on October 23 after the market closes. Analysts are expecting earnings per share to come in at $2.23 on revenue of $15.08 billion. This equates to 1.4% and 2.1% year-over-year increases, respectively, according to TipRanks’ data.
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Ideally, earnings per share should grow faster than revenue as this demonstrates a high degree of operating and financial leverage in the business. Nevertheless, it’s worth noting that IBM has beaten earnings estimates every quarter since its 2021 Q4. Therefore, it’s possible that EPS growth will outpace revenue growth.
Why IBM’s Earnings Streak Could Continue
There is reason to believe that IBM’s winning earnings streak could continue. According to bullish analysts, IBM’s push into newer technologies is likely to have a positive impact on its financial performance. These include technologies such as AI and quantum computing, which are likely to significantly shape the future of many different industries.
However, there are always risks that need to be considered. For starters, bearish analysts are growing concerned about IBM’s valuation, as they believe the positive expectations from this new technology are already priced into the stock. This would mean that any sort of disappointment could lead to a sharp decline in share prices. In addition, a weakening macroeconomic environment is putting pressure on IBM’s consulting segment, which increases the chances of disappointing investors.
Is IBM a Good Stock to Buy Now?
Overall, Wall Street analysts seem to think that the risk-to-reward ratio on IBM stock is balanced due to their Hold consensus rating. This is based on five Buys, seven Holds, and two Sells assigned in the past three months, as indicated by the graphic below. Nevertheless, after a 77% rally in its share price over the past year, the average IBM price target of $217.15 per share implies 6.53% downside risk.
Interestingly, options traders appear to have the same balanced sentiment, as the at-the-money call and put options are almost evenly priced (at the time of writing) for the option chain that expires closest to IBM’s earnings report.
