HEY GUYS!!! THE EMPEROR IS WEARING NO CLOTHES!!!!
Or is Mr. Gerstner keeping IBM's stock price artificially high, while selling off the company's future. Remember the major part of his compensation comes from gains in short term earning's, or the improvement from when he first became IBM's CEO?
It is therefore incredible to me, that since IBM announced their Q1 97 earnings last week, their stock has gone up more than 20 points. What has happened to honesty in the profession of financial analysis? Why haven't other Sell Side analysts reported on the poor quality of IBM's Q1 97 earnings?
While IBM reported earnings were up only $.16, a paltry 7.2 % from their year ago's quarter, a closer examination reveals the true inferior quality of those earnings. Compare IBM's 7.2 % increase in earnings over Q1 96, to Intel's 110 % increase in earnings, or $1.18, from their Q1 96. Yet over the last two reported quarters, IBM is down from their $170 high, to $158--- 12 points, while Intel is down from their $165 high, to $150 ---15 points.
There are many items, that stand out in my mind, that show how IBM "managed" to beat the $2,32 First Call estimate by $.05, however, most significant for me were:
-----A 7.2% decrease in shares outstanding. Without the $2 Billion buy back of 42.6 Million shares, IBM would have earned $.18 less per share in Q1 97, than Q1 96.
-----Had IBM kept the same tax rate of 39%, as the year before, earnings would have been $.12 less for the quarter.
----Had IBM not lowered their R & D expenses in Q1 97 by $22 million, form the prior year, their earnings per share after taxes, would have been .03 less.
Collectively therefore, IBM would have earned $2.04 for the quarter, a 7.2 % decrease in year over year, and NOT the 7.2% increase, that they reported last week.
Over the weekend I will try to spell out some of the other disturbing factors for me. Factors which contributed to my decision to buy even more IBM Puts today. IBM was at 157 at the time.*
*The reader should be aware that I have been long IBM Puts since Jan 21, when I first bought IBM Puts to cross hedge against gains in my Intel core position. IBM's stock price on that day was 169 3 /4.
Jules |
