IBM Earnings Preview: 5 Things To Know

Lowered Expectations From Morgan Stanley

Morgan Stanley issued a report Wednesday downgrading IBM from a rating of overweight to equal-weight— meaning the firm expects an average return of others in the coverage area.

Although the investment firm upgraded IBM to overweight in April, Morgan Stanley now thinks the vendor will have a tough time beating last year’s performance in mainframes and enterprise license agreements.

Morgan Stanley believes an “early cycle environment” will happen in early or mid-2023. These environments are usually when IBM underperforms, according to the report.

“Should our 2023 Industry Outlook prove correct, and early cycle dynamics emerge in mid 2023, we see risk to outperformance given the stock is trading near-record highs and IBM historically underperforms IT Hardware and its peers in an early cycle environment,” according to the report.

Still, the report complimented IBM on creating a “more defensive business model” of 60-plus percent recurring revenue mix and 75 percent software and services revenue mix.

Morgan Stanley forecasts that IBM reports $16.3 billion for the fourth fiscal quarter, a 5.2 percent increase year over year minus foreign exchange.