Foolish Forecast: A Big Blue Counter-Indicator?

• Email
• Share
• Print

"I was alive and I waited, waited
I was alive and I waited for this
Right here, right now"

-- "Right Here, Right Now," Jesus Jones, from the 1991 album Doubt

IBM (NYSE: IBM) is waiting for Wednesday night to come so it can share its first-quarter results with the world. Check out last quarter's stellar results, and I'll wait right here until you come back. There is no other place I want to be.

What Fools say:
Here's how Big Blue's CAPS rating stacks up against some of its peers and competitors:

	Market Cap (Billions)	Trailing P/E Ratio	CAPS Rating (Out of 5)
Microsoft (Nasdaq: MSFT)	$262.7	16.1	***
IBM	$160.9	16.2	***
Hewlett-Packard (NYSE: HPQ)	$111.9	15.5	****
Oracle (Nasdaq: ORCL)	$103.3	20.6	****
Sun Microsystems (Nasdaq: JAVA)	$13.3	17.6	***

Data taken from Motley Fool CAPS on April 15.

IBM is solid enough that even the bears say nice things about it. CAPS All-Star player Gunark rates the stock a thumbs-down but does so "against my better [judgment]," while another highly rated player, OldCaptain, starts a bear pitch by saying, "IBM is a very good company." The upsides include a global footprint, strong products, and a generous share-buyback program.

OK, but there are a few actual negatives on board, too. Our players cite execution problems, a recent run-up on the stock, and the same buyback that is a positive for some other Fools. To each his own, I guess.

What management does:
If you've seen IBM's trailing margins once, you've pretty much seen 'em all. Note how the free cash flow margin consistently runs higher than net income, and how the company's sales growth has accelerated lately.

Margins	9/26	12/06	3/07	6/07	9/07	12/07
Gross	41.7%	41.9%	42.1%	42.2%	42.1%	42.2%
Operating	14.1%	14.3%	14.4%	14.4%	14.5%	15%
Net	10.2%	10.4%	10.4%	10.4%	10.4%	10.5%
FCF/Revenue	12.2%	11.6%	11.2%	12%	12.3%	11.6%

Y-O-Y Growth	9/06	12/06	3/07	6/07	9/07	12/07
Revenue	(5.1%)	0.3%	4.4%	7%	7.3%	8.1%
Earnings	20.4%	17.8%	15.2%	15.7%	8.3%	10.6%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Last quarter, IBM gave us a good look that seemed to set the wrong tone for the rest of the market. That makes Big Blue a misbehaving bellwether stock, but it's also a strong competitor that can pull out excellent performance in the face of macroeconomic disasters.

Is there another positive surprise in the bag? If so, I'd say that IBM is treating this challenging time as an opportunity and stealing market share from stumbling rivals. Tune in Thursday morning to see the results.