IBM releases its results on Monday. Here’s what to expect.

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IBM has previously said it expects annual growth to return to the mid-single-digit range starting this year.

David Paul Morris/Bloomberg


IBM

will release its fourth-quarter results after markets close Monday, its first financial update since completing the spinoff of Kyndryl, its former managed IT services business.

Part of a multi-step process by IBM (ticker: IBM) CEO Arvind Krishna to get the company back on track for reliable revenue growth, the deal with Kyndryl was concluded in mid-November. The timing could lead to confusion as to quarter numbers and adjusted data from prior periods.

Adjusted for Kyndryl (KD) spin-off, The Street forecasts fourth-quarter revenue of $16.1 billion, up about 2.5% from the adjusted level of $15.7 billion dollars a year ago. The Street sees non-GAAP earnings from continuing operations for the quarter of $3.14 per share, compared to $1.88 per rotation-adjusted share a year earlier. IBM said fourth-quarter revenue would be reduced by 1 or 2 percentage points due to unfavorable exchange rates.

IBM has previously said it expects annual growth to return to the mid-single-digit range starting this year. The company expects that over time it will post high single-digit growth in consulting, mid-single-digit growth in software, and stable revenue from hardware, rising and falling with the cycles of products.

IBM is likely to provide more detailed guidance on the outlook for 2022, in what could be the report’s most impactful element. The Wall Street consensus calls for revenue of $59.8 billion, with earnings of $10.09 per share.

As of this quarter, the company is launching revised segment information. The business is divided into software, which was formerly called cloud software and cognitive software; Consulting, formerly known as Global Business Services; and Infrastructure, which includes hardware, storage and related support.

Evercore ISI analyst Amir Daryanani said in a recent note that all eyes will be on the 2022 forecast. given the weakness in the company’s transaction processing business, but that advice is expected to target high-single-digit growth, the analyst said. Hardware is expected to show growth this year as a new mainframe cycle kicks off, Daryanani predicted.

“We believe IBM post-Kyndryl should be a much more nimble and profitable asset that is better positioned to grow consistently, but we believe the consensus March quarter revenue estimate looks high as the benefits of the Mainframe refresh likely won’t begin until Q2,” he said. . Daryanani kept the stock at In Line with a price target of $140.

Shares closed Friday at $129.38, down 1.1%, while the S&P 500 fell 1.9%.

Stifel analyst David Grossman said a flurry of recent moves by Krishna and his team – Kyndryl’s spin-off and now the ongoing sale of Watson Health, expanded distribution partnerships, a new plan compensation from continued sales and acquisitions – expected to start paying off in 2022 Forecasts 6% revenue growth, though flat at 1% excluding Kyndryl exit gains and other temporary factors.

Grossman argues that IBM’s rich 5% dividend yield suggests that the market thinks IBM will remain in secular decline no matter what Krishna does, and that current levels of free cash flow are unsustainable. Grossman disagrees.

“While the risk is high, given the slower than expected stabilization of earnings, we believe the risk/reward balance remains attractive, given the very negative market sentiment and several potential catalysts over the next 12 months. , which could push up the estimates and the multiple,” he wrote. . Grossman has a buy rating and target price of $145.

Write to Eric J. Savitz at [email protected]

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