by Ian Harvey
January 23, 2019
International Business Machines Corp. (NYSE:IBM)
Despite analysts being wrong on IBM’s earnings report, “Earnings Predictions Members,” taking a put option, and selling before the earnings report came out, made a potential profit of 54%.
Big Blue rallied after hours topping estimates and issuing slightly better-than-expected earnings guidance. However, cash flow pressures continue.
GREED CAN BE THE UNDOING OF A GOOD PROFIT!
IBM reported Q4 revenue of $21.76 billion and non-GAAP EPS of $4.87, slightly topping consensus analysts’ estimates of $21.73 billion and $4.82.
Another example of analysts being far from right can be found in the article “California Resources Corp Craters Due To Sell-off In Crude Oil!”
PATIENCE PAYS OFF!
YOU NEED TO BE IN TO PROFIT!
The Details Presented Previously……..
The struggling info tech giant International
Business Machines Corp. (NYSE:IBM) will report earnings after the market
closes. The consensus earnings estimate is $4.81 per share on revenue of $21.75
billion; but the Whisper number is for $4.88 per share. Consensus estimates are
for earnings to decline year-over-year by 7.14% with revenue decreasing by
International Business Machines Corp. is looking at a second straight quarter of revenue declines. And Wall Street remains skeptical of IBM’s turnaround program. The company failed to make the gains in cloud computing and artificial intelligence that it has been working on for years, which led to the massive $34 billion acquisition of RedHat announced last year. A lot of analysts believe IBM overpaid for RedHat and it will take many years to recoup the cost.
The stock was already showing weakness before the announcement and fell sharply on the news. The stock drop was compounded by a correction in the overall market. There is a lot of negativity priced into the stock at this time. IBM shares have fallen nearly 16% since the company’s previous earnings report, in which revenue fell short of Wall Street estimates.
Instinet analyst Jeffrey Kvaal, who has a buy rating on IBM and reduced his price target to $160, said a strong dollar still presents a headwind for IBM and will likely continue into 2019. Even as revenues slip, IBM’s focus is shifting revenue into that “strategic imperatives” column. Kvaal expects that balance to be even for the year.
Stifel analyst David Grossman, who has a buy rating and a $178 price target on IBM, said he expects earnings per share and free cash flow at the company to remain relatively flat in 2019 and 2020, with growth resuming in 2021.
“This analysis assumes no revenue or cost synergies from the RHT acquisition and modest headwinds from IBM’s residual core,” Grossman said.
Overall earnings estimates have been revised lower since the company's last earnings release.
Option trade to consider: Buy the IBM FEB 15 2019 120.000 PUT at approximately $2.80.
The Result So Far………
IBM shares climbed higher after reporting a fourth-quarter earnings and sales beat after Tuesday's close; and by end of after-hours trading the stock had tacked on +$8.08 (6.59%) to close at $130.60.
Fourth-quarter adjusted earnings came in at $4.87, beating estimates by 3 cents. Sales came in at $21.76 billion, beating estimates by $10 million. IBM also issued strong FY2019 earnings guidance and sees free cash flow of approximately $12 billion.
2018 we returned to full-year revenue growth, reflecting growing demand for our
services and leadership solutions in hybrid cloud, AI, analytics and
security," said Ginni Rometty, IBM Chairman, President and CEO. "Major clients worldwide, such as BNP
Paribas, are turning to the IBM Cloud and our unmatched industry expertise to
transform their businesses and drive innovation."
So, for “Earnings Predictions Members” members, who managed to execute this trade recommended by Stock Options Made Easy, and then exit before IBM reported earnings; a potential profit of 54% was to be made during the trading day.
Entering the option trade at a cost of $2.90 or less; and the price of the option reaching $4.47 on the day; a profit of 54% was made. Therefore, one options contract would provide a profit of $157.00.
A NICE START TO THE WEEK!
AS ALWAYS THE DECISION IS YOURS!
IBM also guided for 2019 EPS of "at least" $13.90, which is slightly above reported 2018 EPS of $13.81 and favorable to a $13.80 consensus. On the other hand, the company is guiding for 2019 free cash flow (FCF) of roughly $12 billion, which is below a $13 billion consensus. An IBM spokesperson notes the FCF consensus is skewed by one analyst estimate of around $16 billion and might not account for recent deals to sell seven software businesses and IBM's Seterus mortgage servicing unit, which are expected to close in the coming months.
While IBM's guidance accounts for the asset sales, it doesn't account for the company's recent $34 billion deal to buy open-source software giant Red Hat (RHT - Get Report) , which will be paid for with cash and is expected to close in the second half of 2019.
As you would have by now realized, some of our trades are based on earnings predictions. This is not to say all trades recommended to members follow this pattern, but it is obvious that it does apply in this case; and during earnings season this strategy of predicting earnings has been very profitable.
Sometimes it is our approach to predict whether a company will beat or miss estimates, whether the stock will appreciate or depreciate as a result and what strategies investors and traders can use – such as found with the “Earnings Predictions Program”. This type of prediction is based on thorough investigation and fundamentally based research, and the results have been exceptional.
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!
Strategies to Consider……
When To Exit A Trade Based On Earnings?.....Read Article
"Trading Capital Management" is a key component of your trading strategy. The strategy, on which we base our trades to achieve maximum profit, and to minimize loss, is contingent on using an equal amount of money for each trade.……continue reading this article……
Our proven track record says it all!!
Members of Stock Options Made Easy are provided with an extensive reason as to which direction a stock will move after earnings, followed up by a recommended options trade.
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Other Membership Options…….
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