IBM Analysis After Better than Expected Earnings

Published on Friday, 20 January 2012 13:34 Written by J Hawk

New York, January 20^th (TradersHuddle.com) – Armonk, New York based International Business Machines (NYSE: IBM) comfortably improved on market analysts’ consensus expectations for its fourth quarter earnings that were released yesterday just after the U.S. stock market had closed.  This news prompted major Wall Street investment firms like Goldman Sachs to improve their forecasts for the stock.

According to the company’s earnings report, IBM earned $5.5 billion in the last quarter of 2011 that concluded on December 31^st.  That number amounts to earnings of $4.62 per share, and it demonstrates a respectable increase of 4 percent from the $5.3 billion or $4.25 per share earnings result seen in the fourth quarter of 2010.

On balance, the stock market responded positively to Big Blue’s latest earnings news. After the announcement, IBM’s stock rose in after-hours trading, and by mid-day today, the stock was trading up $7.23 or +4.01% on the day to the $187.75 per share level in active trading on the New York Stock Exchange.

IBM’s Revenues Take a Large Hit Due to Currency Fluctuations

While its overall earnings results were positive, IBM disclosed that its revenues were hit by currency fluctuations that occurred since its last quarterly earnings report released in October. This factor took roughly $300 million out of the company’s fourth quarter results and reflects part of the risk the multinational company takes by participating in the global technological marketplace. 

Without taking into account the currency factor, IBM’s Q4 2011 revenue rose 2 percent to $29.49 billion compared with its previous $29.02 billion result for 2010’s fourth quarter.  Nevertheless, the company showed a generally reduced performance relative to the previous quarter.

For example, its fourth quarter revenue gain of 9 percent in its large software division came in below that division’s third quarter rise of 13 percent. Furthermore, IBM’s services division’s Q4 revenue was up just 3 percent, after having gained 8 percent in Q3. Even worse, the firm’s hardware division showed a decline of 8 percent in Q4 versus a rise of 4 percent seen in Q3.

The Technical Picture for IBM Remains Bullish After Recent Correction

From a technical perspective, IBM’s (NYSE: IBM) share price has shown a regular long term upwards trend that continued throughout 2011 after the stock broke out to the upside from an extended rectangular consolidation period that culminated in late September of 2010. 

Figure 1: A daily close line chart of the stock price of International Business Machines (IBM) over a two year period.

This uptrend has thus far taken the stock to its 52 week high point of $194.90 that was reached in early December of 2011. Since that time, the stock’s price had traded in a near term corrective decline immediately prior to the company’s positive Q4 earnings announcement yesterday.  

This most recent drop established good support at $177.35, and the same price region had previously prompted a substantial upside reversal in late November of 2011 when the stock dipped as low as $177.06. This area should now provide a solid base of support for another rally in IBM that could well exceed its December 2011 high.

Furthermore, today’s price action shows an upside breakaway gap on the daily bar chart, so pullbacks ahead of the stock’s lower up trend line should now represent buying opportunities for the stock.  Resistance to the upside is indicated initially at $188.71 and $189.97, and then above that at the key $194.90 level.