IBM Analyst Day Likely to Focus on 2015 Roadmap

International Business Machines Corp. (IBM) would be hosting its Analyst Day today at its Thomas J. Watson Research Center in Yorktown Heights, New York at 10 am EST that is likely to focus on 2015 roadmap, according to Barclays Capital.

Since the company already unveiled a solid EPS roadmap through 2015 last year, we believe the day will serve as an update as to how it is executing toward that goal. To that end, we expect IBM to expand on several of the themes discussed at last year’s Analyst Day such as its bets on 'growth markets', 'analytics', 'next generation data center and cloud', and 'smarter planet', said Ben Reitzes, an analyst at Barclays Capital.

Reitzes said key questions at the meeting should surround succession planning (CEO Sam Palmisano recently promoted several key executives to expanded roles), risks around government exposure (16 percent of total revenue), the duration of the current mainframe cycle, confidence in how services backlog translates into revenue growth and potential acquisition plans.

In short, Reitzes believes the 2011 Analyst Day would highlight how IBM is on track toward achieving its goals, which should be enough given IBM’s roadmap provides unique visibility within the sector, especially versus Hewlett-Packard (HP).

In terms of guidance, Reitzes expects IBM to reiterate its 2015 roadmap EPS of at least $20, based on its new adjusted/operating earnings methodology (excludes amortization of intangibles and certain pension expenses, which are rising). Included in the roadmap, Reitzes expects IBM to reiterate its most recent 2011 EPS guidance of at least $13.00.

With regard to its 2015 EPS plan of $20, IBM expects to grow revenues 5% per year from 2010 contributing about $3.00 of the EPS expansion. Included in the revenue goal is two points attributable to expanding its current base, contributing about $1.45.

One point of revenue growth is attributable to favourable revenue mix (contributing about $0.70), and 2 points from acquisitions (contributing $0.90). With regard to IBM’s ability to benefit from its operating leverage, it expects $0.75 in margin and $2.05 in enterprise productivity. The remaining portion of EPS expansion is attributed to share repurchases of approximately $2.80.

Reitzes expects to get an update around IBM’s four key growth initiatives on Tuesday. Last year, IBM stated that it could enable revenue growth of at least 5 percent in its 2015 roadmap through key growth strategies. These four growth initiatives are expected to deliver $20 billion of revenue growth over the 2015 roadmap ($30 billion in 2010 to $50 billion in 2015).

In IBM’s Growth Markets (really another terms for emerging markets), revenue growth should outpace major markets by at least 8 points and grow to over 25 percent of IBM’s revenue and contribute 50 percent of IBM’s growth by 2015. For Smarter Planet, IBM expects revenue to reach $10 billion by 2015, 25 percent compound annual growth rate (CAGR).

For Next Generation Data Center and Cloud Computing, IBM expects this segment to contribute $3 billion of net growth by 2015. Finally, for Business Analytics, IBM expects this business to grow to $16 billion by 2015 and contribute about 20 percent of IBM’s growth over the roadmap.

The brokerage raised its 2011 adjusted EPS estimate for IBM to $13.05 from $12.61, while introducing its 2012 estimate of $14.50. The brokerage maintained its equal weight rating on shares of IBM with a price target of $167.

IBM stock closed Monday's regular trading down 1.17 percent at $159.93 on the NYSE. The stock traded between $116 and $166.25 during the past 52 weeks.