January 12, 2025

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Facts to Know Before Betting on It

Facts to Know Before Betting on It

IBM (IBM) has recently been on Zacks.com’s list of the most searched stocks. Therefore, you might want to consider some of the key factors that could influence the stock’s performance in the near future.

Over the past month, shares of this technology and consulting company have returned -3.2%, compared to the Zacks S&P 500 composite’s -1.7% change. During this period, the Zacks Computer – Integrated Systems industry, which IBM falls in, has lost 5.1%. The key question now is: What could be the stock’s future direction?

Although media reports or rumors about a significant change in a company’s business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company’s earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.

Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

IBM is expected to post earnings of $3.74 per share for the current quarter, representing a year-over-year change of -3.4%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The consensus earnings estimate of $10.16 for the current fiscal year indicates a year-over-year change of +5.6%. This estimate has remained unchanged over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $10.61 indicates a change of +4.5% from what IBM is expected to report a year ago. Over the past month, the estimate has remained unchanged.

With an impressive externally audited track record, our proprietary stock rating tool — the Zacks Rank — is a more conclusive indicator of a stock’s near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #2 (Buy) for IBM.

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