Last week, you might have seen that International Business Machines Corporation (NYSE:IBM) released its full-year result to the market. The early response was not positive, with shares down 7.6% to US$119 in the past week. International Business Machines reported US$74b in revenue, roughly in line with analyst forecasts, although statutory earnings per share (EPS) of US$6.23 beat expectations, being 3.8% higher than what the analysts expected. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. With this in mind, we’ve gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Check out our latest analysis for International Business Machines
Following last week’s earnings report, International Business Machines’ 13 analysts are forecasting 2021 revenues to be US$74.2b, approximately in line with the last 12 months. Statutory earnings per share are predicted to leap 42% to US$8.78. In the lead-up to this report, the analysts had been modelling revenues of US$74.7b and earnings per share (EPS) of US$9.41 in 2021. So it looks like there’s been a small decline in overall sentiment after the recent results – there’s been no major change to revenue estimates, but the analysts did make a small dip in their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$137, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. The most optimistic International Business Machines analyst has a price target of US$160 per share, while the most pessimistic values it at US$117. As you can see, analysts are not all in agreement on the stock’s future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
Of course, another way to look at these forecasts is to place them into context against the industry itself. From these estimates it looks as though the analysts expect the years of declining sales to come to an end, given the flat revenue forecast for next year. That would be a definite improvement, given that the past five years have seen sales shrink five years annually. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 14% next year. So it’s pretty clear that, although revenues are improving, International Business Machines is still expected to grow slower than the industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for International Business Machines. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – although our data does suggest that International Business Machines’ revenues are expected to perform worse than the wider industry. The consensus price target held steady at US$137, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn’t be too quick to come to a conclusion on International Business Machines. Long-term earnings power is much more important than next year’s profits. We have forecasts for International Business Machines going out to 2025, and you can see them free on our platform here.
We don’t want to rain on the parade too much, but we did also find 3 warning signs for International Business Machines that you need to be mindful of.
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