IBM shares gain 12.4% as earnings estimates rise modestly

International Business Machines Corporation shares returned 12.4% over the past month, outperforming the Zacks S&P 500 composite, which declined 1.2% during the same period. This performance contrasted sharply with the Zacks Computer - Integrated Systems industry, which lost 18.5% over the last month.

Zacks Investment Research identifies earnings estimate revisions as a primary driver of near-term stock price movements. According to the firm, an increase in the fair value of a stock, determined by the present value of future earnings, often prompts investor buying when it exceeds the current market price.

For the current quarter, IBM is expected to post earnings of $4.63 per share, a year-over-year increase of 2.4%. The Zacks Consensus Estimate for this metric changed by 0.7% over the last 30 days. For the current fiscal year, the consensus earnings estimate stands at $12.41 per share, reflecting a 7.1% year-over-year change. This estimate also saw a 0.7% adjustment in the past month. Looking ahead to the next fiscal year, the consensus estimate is $13.24 per share, indicating a 6.7% increase from the prior year, with a 0.1% change recorded over the last 30 days.

Based on these revisions and other factors, IBM holds a Zacks Rank of #3 (Hold). Zacks states that this rating suggests the stock may perform in line with the broader market in the near term.

Revenue projections also show modest growth. The consensus sales estimate for the current quarter is $20.38 billion, up 3.5% year-over-year. For the current and next fiscal years, consensus estimates of $70.51 billion and $73.31 billion indicate changes of 4.4% and 4%, respectively.

In its most recent reported quarter, IBM generated revenues of $17.1 billion, a 4.7% year-over-year increase. This figure surpassed the Zacks Consensus Estimate of $16.87 billion by 1.37%. Earnings per share for that period were $2.95, compared with $2.65 a year ago, resulting in an earnings surprise of 2.43%. Over the last four quarters, IBM exceeded consensus earnings estimates three times and topped consensus revenue estimates three times.

Despite these results, IBM is graded D on the Zacks Value Style Score, indicating it is trading at a premium to its peers. The score evaluates both traditional and unconventional valuation metrics to determine if a stock is overvalued, fairly valued, or temporarily undervalued.