Fly Intel: What to watch for in IBM's earnings report

IBM (IBM) is scheduled to report results of its fiscal third quarter after the market close on October 16, with a conference call scheduled for 5:00 pm ET. What to watch for: 1. FY18 GUIDANCE: Along with its last report, IBM maintained its fiscal 2018 adjusted earnings per share view of "at least" $13.80. At the time, analysts were expecting the company to report FY18 EPS of $13.78, but that figure has since risen to $13.80. The company noted in its last earnings release that operating EPS excludes $2.20 per share of charges for amortization of purchased intangible assets, other acquisition-related charges and retirement-related charges as well as impacts from the enactment of U.S. Tax Reform. 2. JEDI CONTRACT PROTEST: Last week, an IBM executive confirmed to the Washington Post that the company had filed a pre-award bid protest with the Government Accountability Office over the Defense Department's decision to seek a single provider for its $10B Joint Enterprise Defense Infrastructure, or "JEDI," cloud computing infrastructure project. Amazon Web Services (AMZN) is largely viewed as the front-runner for the contract, though IBM, Microsoft (MSFT), and Oracle (ORCL) are expected to compete for the deal, the report noted. Google (GOOGL) said last week that it would not bid, stating that the "ethical guidelines" of Google's AI Principles do not align with portions of the contract deemed to be "out of scope with our current government certifications." 3. UBS UPGRADES TO BUY: On September 26, UBS analyst John Roy upgraded IBM to Buy from Neutral and upped his price target for the shares to $180 from $160, saying that the market is pricing in a 2% revenue decline, which the company can beat. Additionally, Roy's sum-of-the-parts analysis suggests the market is applying virtually no value to IBM's hardware business, which the analyst thinks is "unrealistic." The same analyst backed his Buy rating and $180 price target on IBM shares last week, saying he likes the stock heading into Q3 results on expectations that tech spending budgets are "flush" this year. Roy noted that Q3 historically sees a revenue decline, but he thinks that is already price into the stock. 4. GROUPON SUIT: In late July, Bloomberg reported that IBM was awarded $83.5M by a U.S. jury after the jury determined that Groupon (GRPN) infringed four of the company's e-commerce patents. The jury sided with the argument of IBM's lawyers, who said that Groupon was attempting to portray IBM as claiming to have patented the Internet and had called that effort "a smoke screen," Bloomberg said. On October 1, the two companies said they have settled all patent lawsuits between them for approximately $57M paid to IBM and a long-term patent cross-license pact between the two parties. As part of the deal, IBM will consider making available certain Groupon products and exclusives to its employee base as part of its corporate benefits offer.