A look at IBM’s Q3
Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
IBM (NYSE: IBM) reported its 3rd quarter earnings, and immediately afterwards its share price declined. IBM has reported results better than analyst estimates for the last four quarters, so it was quite unexpected when the company missed revenue targets by almost 3%. The main reason behind this miss was the fact that customers put off spending on big ticket items and a stronger dollar hit the company’s top line.
Analysts had predicted EPS of $3.62 and revenues of $25.4 billion for the quarter that ended in September. The company reported that its earnings were $24.7 billion in revenues and $3.62 in EPS. A bonus for investors is the fact that the company has maintained its full year $15.10 EPS guidance, a 12% year over year increase.
If you look at it geographically, IBM's revenues from America declined by 4%. Software in that geographical area increased by 4%, but it was offset by a double digit decline in hardware. Japan and Europe were pretty flat too, but there was hope in the BRIC region with India, China, and Russia being major contributors.
One of the key things that stood out in the Q3 report is the solution offered by IBM: "Smarter Planet." The company offers integrated solutions for the management of different systems such as water management, traffic congestion solutions, etc. Naturally, this is a future growth area for IBM and the initiative showed an impressive growth of 20%.
Let’s now take a look at some of the competitors that IBM faces, namely Accenture (NYSE: ACN) and Hewlett-Packard (NYSE: HPQ). Accenture had its price target raised recently from $58 to $71 by Societe Generale. “Following Accenture’s strong FY12 results (to end-August), better-than-expected FY13 guidance and Analyst Day on Oct. 11, we are upgrading our FY13 revenue and EPS estimates by 4% and 9%, respectively,” the analyst wrote. The firm is maintaining a hold rating on the stock.
Barclays Capital also raised their price target for shares of the company to $70 from $66 sometime at the end of September. Wells Fargo reiterated an outperform rating on Accenture in a research note to investors. With strong fundamentals and excellent growth prospects, particularly in the outsourcing industry, Accenture seems to be a good company to hold on to.
Things aren’t going so well for Hewlett-Packard though. Credit Suisse reaffirmed their neutral rating on the stock. Analysts at Sterne Agee downgraded the stock from buy to neutral in the beginning of October. And analysts at Citigroup and UBS AG hold a sell position on the company.
So if I had to look at the three companies and pick any one of them, it’d be a bit of a fight between Accenture and IBM. I have always maintained that HP is a no-go until somebody in the company decides on the direction it is heading and strengthens key areas such as cloud computing.
If it came down to Accenture and IBM, I’m bullish on both, but I’ll go with IBM. One of the key points in the Q3 report was the fact that revenues had been boosted by higher margins. The main reason for the company doing poorly was the currency situation, as mentioned earlier. Take that away and it records a 7% growth. All of these reasons make me give the nod to IBM, although Accenture isn’t a bad bet either. Yet, to err on the side of caution, diversification would be a good idea, especially when it comes to tech stocks.
ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines. Motley Fool newsletter services recommend Accenture Ltd., International Business Machines, and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.