International Business Machines (IBM) is set to report its third-quarter earnings on October 22 after the market closes. Wall Street predicts that IBM will generate about $16.1 billion in revenue and post earnings of roughly $2.45 per share, a 6.5% increase from the same quarter last year. Most of the growth is expected to come from IBM’s Software segment.
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Interestingly, recent trends support this outlook. In the second quarter, IBM’s Software revenue grew by 8% year-over-year to $7.4 billion (as per the image below), driven by strong performance from Red Hat, which saw growth accelerate to 14%. The company is also investing heavily in its AI platform, watsonx, and in quantum computing.
However, there are still risks that investors should watch for. Indeed, IBM’s Consulting unit remains under pressure, as it came in flat in the second quarter. In addition, signings were down 18% due to prior-year renewals.
What Do Options Traders Anticipate?
Using TipRanks’ Options tool, we can see what options traders are expecting from the stock immediately after its earnings report. The expected earnings move is determined by calculating the at-the-money straddle of the options closest to expiration after the earnings announcement. If this sounds complicated, don’t worry, the Options tool does this for you. Indeed, it currently says that options traders are expecting a 7% move in either direction.
Is IBM a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on IBM stock based on six Buys, six Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average IBM price target of $287.50 per share implies that shares are trading near fair value. At the same time, TipRanks’ AI Analyst has an Outperform rating and a $274 per share price target.
