SEE NEW TRADE BELOW:
Event: IBM ($181.15) reports Q4 earnings after the close, the implied move in the options market is about 3.3% inline with the 4 qtr avg move of about 3.3%.
IBM is a very cheap stock trading at about 12x next years earnings which are expected to grow at about 11%, but sales are only expected to grow a paltry 3%. The company doesn’t give specific quarterly guidance but should give a sense for 1st half of 2012 which will likely be the driver for the stock post earnings.
Bloomberg had the following preview earlier today:
• 4Q billings est $20.79b (range $18.9b-$24.3b) (10 analysts)
• 4Q adj. EPS $4.62 (range $4.57-$4.69)
• 4Q rev. $29.7b (range $28.9b-$30.3b)
WHAT TO WATCH:
• Total billings trending $18b-$20b range; prior yr comp. “extremely difficult” at $22b, anything above $18 likely reasonable, Stifel Nicolaus analyst David Grossman said in Jan. 11 note
• “4Q11 services signings (billings) face a tough comparison, versus a yr ago as several multi-billion dollar deals slipped into 4Q10,’’ JPMorgan analyst Mark Moskowitz said in email to Bloomberg First Word
• Currency likely to be “slight headwind” in 4Q; 2012 EPS guidance may be below Street est. of $14.78, UBS analyst Maynard Um said in Jan. 18 note (Street est. now $14.81)
• IBM has met or beat EPS ests in 26 straight qtrs
• IBM has beaten sales last 7 of 10 qtrs
• IBM down 3% since reporting 3Q results Oct. 17, S&P 500 up 8.9%
The chart looks absolutely horrible in my opinion. Since disappointing the street with a lackluster Q3 back in mid Oct, the chart has been forming a textbook head and shoulders top formation with $180 being the neckline.
Wall Street analysts are extremely mixed with 15 Buys, 15 Holds and 1 Sell, while short interest is about 1.25% of the float.
While the move isn’t exactly expensive, the stock is one of the worst acting large cap tech stocks this year, down almost 2% ytd vs the SPX that is up 4.4% and the Nasdaq which is up 6.9%.
Given ORCL‘s results and guidance given in DEC and given IBM’s exposure to similar verticals and geographies that caused their problems, I am hard pressed to see too much upside here…..
THAT SAID GIVEN THE STOCK’S RECENT UNDER-PERFORMANCE, A BEAT FOR Q4 AND SOME POSITIVE COMMENTARY COULD SPARK A FAIRLY SHARP RALLY IN THE SHARES.
I don’t have a trade here, just wanted to quickly frame it for you guys. What worked for me during Q3 earnings period (shorting extended names into their reports) ain’t exactly working for me in the last few weeks. Investor sentiment has turned on a dime since Oct…and I am going to look to play after the print in names where I lack conviction.
But Obviously most of you know I would prefer to be short and I would be targeting $170 on the downside near term if I were to play……My ideal situation would be for the stock to open up tomorrow on less than exciting results and then look to short ini a market that I think is getting a bit extended.
TRADE IBM $181 Bought Feb 180/170/160 Put Fly for 2.05
Bought 1 Feb 180 Put for 4.80
Sold 2 Feb 170 Puts for a total of 3.26 (1.63 each)
Bought 1 Feb 160 Puts for .51