The market hits IBM shares

Big Blue beats Street estimates and boosts guidance. But the decline in shares after hours may have nothing to do with the company.

By Charley Blaine Apr 19, 2010 9:22PM
Here's a question: Why do investors sell IBM (IBM) when the company beat Street estimates on earnings and revenue AND  guided higher for the year?

That's what happened, and it may have more to do with the stock market than anything IBM did.
IBM reported $2.6 billion in net income, up 13% from a year ago; $1.97 in earnings per share, up 16% a year ago; and revenue of nearly $22.9 billion, up 5%. It raised its full-year estimate for earnings per share to $11.20 from a January estimate of $11.

And despite all that good news, the stock fell 2.2% to $129.31 after hours Monday after rising 1.2% to $132.23.

There does seems to be another trend at work. Investors bid up a stock, assuming better-than-expected results.

And if the company comes up short in any way, its stock sells off.

IBM shares rose 3.6% between April 8 and Monday.IBM

Oracle (ORCL) shares fell 1.5% to $25.69 after its fiscal-third-quarter report, released March 25, showed profits rising some 9% after one-time items. The shares had risen 5.6% in March ahead of the report.

Google (GOOG) fell 7.5% to $550.14 on Friday after its first-quarter earnings came out late Thursday. Google reported $6.76 a share in earnings, up from the Street estimate of $6.57.  Shares had risen 5.1% in four days leading up to the report.

It appears that the whisper number was closer to $6.90. And investors seemed unhappy at Google's vow to boost spending and add jobs. Some analysts cut their price targets citing the lack of significant revenue drivers beyond core search.

There were some small problems with IBM that might give investors pause:
  • Revenue was flat once you back out currency gains during the quarter.
  • Its gross profit margin was 43.6%, a touch higher than a year ago's 43.4%. But Wall Street was looking for 44.1%.
  • Its business services, which is its consulting business, showed only a 0.3% revenue gain from a year ago. Analysts have been hoping for more.
The stock has not been overly exciting this year. That may be because IBM emphasizes its services business rather than hot new hardware like Apple (AAPL)

The stock is up just 1% this year, compared with 6.4% for the Dow Jones Industrial Average (INDU).
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