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Here’s Why IBM Fell Despite A Solid Q1 Earnings Beat

IBM ( IBM ) closed down 5.6% at 144 Tuesday, following a first-quarter earnings report late Monday that beat estimates but still left room for concern. IBM has been undergoing a major transition, shedding older technologies while making a concerted push into growth areas such as cloud computing, Big Data analytics, security and mobile computing — areas it calls strategic imperatives. The transition helps explain why revenue growth has declined each quarter for the past four years. In its Q1 earnings results, IBM reported revenue of $18.7 billion, down 4.6% from the year-earlier quarter but edging the Wall Street consensus estimate of $18.3 billion. Revenue from strategic imperatives rose 14%. Total cloud revenue rose 34%. Earnings per share ex items of $2.35 easily beat views of $2.09, as polled by Thomson Reuters, but were down 19% and marked the fourth quarter in a row of EPS declines. IBM stock fell in the stock market today  presumably on the view that Q2 expectations are below estimates. IBM does not provide formal quarterly guidance, but its implied EPS guidance of $2.85 for Q2 is below the consensus estimate of 3.01. Despite the Q1 beat, IBM did not increase but instead maintained its full-year earnings outlook. IBD’s Take: How healthy is IBM’s stock and how does it stack up vs. rivals? Find out at IBD Stock Checkup RBC Capital Markets analyst Amit Daryanani maintained a sector perform rating on IBM stock, and a price target of 155. “We believe the competitive challenges are emerging from companies seeking to build a business model similar to IBM’s, notably Hewlett-Packard Enterprise ( HPE ), Cisco ( CSCO ), Oracle ( ORCL ), EMC ( EMC ), and Dell,” he wrote. Of these competitors, he said, Hewlett-Packard is the closest. Another is Cisco. ‘Attempting To Recreate The IBM Model’ “Beyond Hewlett-Packard and Cisco, there are also others attempting to recreate the IBM model,” he wrote. A harsher report on IBM came from Credit Suisse analyst Kulbinder Garcha, who reiterated an underperform rating and a price target of 110 on IBM stock. “We believe the quality of earnings was again low and the manner in which IBM has chosen to manage its business seems unsustainable,” Garcha wrote. “We believe the secular and structural challenges facing IBM remain, and specifically see limited improvement in Services and Software margins.” UBS analyst Steven Milunovich maintained a neutral rating on IBM but raised his price target to 150 from 132. “The quarter was mixed with revenue and EPS beating due to currency improvement, acquisitions, and the Japan tax rebate,” he wrote. “We give IBM credit for changing the narrative,” with an emphasis on becoming a leader in the new category of Cognitive Computing, which includes its Watson computer business, he wrote. Drexel Hamilton raised its revenue forecast, maintained its EPS projection and raised the price target to 166 from 160.

Here’s Why IBM Is Falling Despite A Solid Q1 Earnings Beat

IBM ( IBM ) was trading down Tuesday, following a first-quarter earnings report late Monday that beat estimates but still left room for concern. IBM has been undergoing a major transition, shedding older technologies while making a concerted push into growth areas such as cloud computing, Big Data analytics, security and mobile computing — areas it calls strategic imperatives. The transition helps explain why revenue growth has declined each quarter for the past four years. In its Q1 earnings results, IBM reported revenue of $18.7 billion, down 4.6% from the year-earlier quarter but edging the Wall Street consensus estimate of $18.3 billion. Revenue from strategic imperatives rose 14%. Total cloud revenue rose 34%. Earnings per share ex items of $2.35 easily beat views of $2.09, as polled by Thomson Reuters, but were down 19% and marked the fourth quarter in a row of EPS declines. IBM stock was down more than 6%, near 143, in afternoon trading in the stock market today , presumably on the view that Q2 expectations are below estimates. IBM does not provide formal quarterly guidance, but its implied EPS guidance of $2.85 for Q2 is below the consensus estimate of 3.01. Despite the Q1 beat, IBM did not increase but instead maintained its full-year earnings outlook. IBD’s Take: How healthy is IBM’s stock and how does it stack up vs. rivals? Find out at IBD Stock Checkup RBC Capital Markets analyst Amit Daryanani maintained a sector perform rating on IBM stock, and a price target of 155. “We believe the competitive challenges are emerging from companies seeking to build a business model similar to IBM’s, notably Hewlett-Packard Enterprise ( HPE ), Cisco ( CSCO ), Oracle ( ORCL ), EMC ( EMC ), and Dell,” he wrote. Of these competitors, he said, Hewlett-Packard is the closest. Another is Cisco. ‘Attempting To Recreate The IBM Model’ “Beyond Hewlett-Packard and Cisco, there are also others attempting to recreate the IBM model,” he wrote. A harsher report on IBM came from Credit Suisse analyst Kulbinder Garcha, who reiterated an underperform rating and a price target of 110 on IBM stock. “We believe the quality of earnings was again low and the manner in which IBM has chosen to manage its business seems unsustainable,” Garcha wrote. “We believe the secular and structural challenges facing IBM remain, and specifically see limited improvement in Services and Software margins.” UBS analyst Steven Milunovich maintained a neutral rating on IBM but raised his price target to 150 from 132. “The quarter was mixed with revenue and EPS beating due to currency improvement, acquisitions, and the Japan tax rebate,” he wrote. “We give IBM credit for changing the narrative,” with an emphasis on becoming a leader in the new category of Cognitive Computing, which includes its Watson computer business, he wrote. Drexel Hamilton raised its revenue forecast, maintained its EPS projection and raised the price target to 166 from 160.

Goldman Sachs Calls 5G Winners: Verizon, Cisco, Intel, Broadcom

Verizon Communications ( VZ ) and AT&T ( T ) could shake up the U.S. residential broadband market by 2020 by deploying 5G wireless services to homes, challenging cable TV firms Comcast ( CMCSA ) and Charter Communications ( CHTR ), says Goldman Sachs. While 5G is expected to provide much faster data speeds, another market opportunity for AT&T, Verizon and T-Mobile US ( TMUS ) will be applications that require always-on, low-data-rate connections, says Goldman Sachs in a new research report. The apps involve data-gathering from industrial sensors, home appliances and other devices often referred to as part of the Internet of Things. Simona Jankowski, a Goldman Sachs analyst, says that some chipmakers, network gear suppliers and software companies will see an upside in 5G deployment. Jankowski says that Broadcom ( AVGO ), Qualcomm ( QCOM ), Intel ( INTC ), Cisco Systems ( CSCO ), cell tower operator Crown Castle ( CCI ), and bandwidth service provider Zayo Group Holdings ( ZAYO ) could see upside from 5G deployment. “We expect pre-standard 5G commercial deployments to begin in the U.S. in 2017, when AT&T and Verizon plan to be first in the world to roll out fixed wireless 5G broadband to the home, followed by pre-standard 5G mobile networks in Korea in time for the 2018 Olympics,” wrote Jankowski in the report. U.S. regulators are focused on opening up high-frequency airwaves , also called millimeter wave spectrum, for 5G services. “Europe led the 3G transition, with industry giants such as Ericsson ( ERIC ) and Nokia ( NOK ) leading the way,” said Jankowski. “With 4G, the baton passed to the U.S., driven by a new group of industry leaders such as Qualcomm and Apple ( AAPL ). With China, Korea and Japan targeting 5G rollouts on par with or ahead of their Western counterparts, it bears watching whether the wireless industry’s center of gravity shifts once again (to Asia).” The Goldman Sachs analyst says that 5G also could have upside for Cisco, Intel, Zayo and Crown Castle. “We view Cisco’s market leading position in IoT as a strategic differentiator, given that 5G will likely be closely coupled with IoT,”  Jankowski added. “We expect Intel’s server and networking business to benefit from increased data traffic and greater demand for compute-intensive data analytics. “As the largest operator of small cell networks in the U.S. and one of the largest pure-play providers of dark fiber in large metros respectively, Crown Castle and Zayo look well positioned for this long-term investment cycle.”