IBM (NYSE: IBM) just delivered a nice "beat and raise." First-quarter EPS of $2.41 grew 21% and beat the consensus estimate of $2.30. Management raised full-year expectations from "at least" $13.00 to "at least" $13.15. The CFO called the quarter "a great start on the road to our 2015 objective."

The 2015 objective was discussed at a March investor day. IBM plans to grow EPS by a compounded annual rate of 11% or more through 2015. Management assumes:

  • Base revenue growth of 2% annually.
  • Total revenue growth of about 5% annually, helped by future acquisitions and four growth initiatives: cloud computing, growth markets (e.g., BRIC countries), business analytics, and smarter planet.
  • Annualized EPS growth of about 3% from productivity gains, 1% from a shift to higher value products and services, and about 4.5% from share repurchases.

How'd they do in the first quarter? They beat that plan:

  • Revenue grew 5% in constant currency, right on plan. It was up 12% in growth markets, 20% in business analytics, and 20% in smarter planet. In cloud computing, it grew five times and is on track to double in 2011.
  • EPS grew 5.5% from productivity gains and a shift to higher value products and services, ahead of plan.
  • EPS grew about 7.5% from share repurchases, ahead of plan.

With the economy still muddling along -- and no end to the muddling in sight -- there's a lot to be said for growing EPS by expanding margins.

Public sector demand was weak, similar to what Cisco (Nasdaq: CSCO), Dell (Nasdaq: DELL), and Computer Sciences (NYSE: CSC) are experiencing. The transactional services business also disappointed, in keeping with Hewlett-Packard's (NYSE: HPQ) latest quarter but in contrast to improvements at Accenture (NYSE: ACN).

On a more positive note, IBM believes it captured almost all the Unix server industry's 8% growth. During the quarter, it had 210 competitive displacements worth more than $200 million, with roughly 60% of those from Oracle's (Nasdaq: ORCL) Sun accounts and 30% from HP accounts.  

Foolish takeaway
IBM laid out a 2010 plan in 2007 and beat it. It's already ahead on its 2015 plan. The company has delivered 33 consecutive quarters of year-over-year EPS growth. (Yes, right through the financial crisis.) It should grow EPS by at least 11% annually through 2015 and yields 1.6%. At a P/E of only 14.3 times, the stock appears attractive.  

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