IBM Slides After Revenues Miss Wall Street Forecasts

International Business Machines Corporation (IBM) shares fell 2.77% in after-hours trade Monday after the computing giant posted its third consecutive quarter of declining revenue as the coronavirus pandemic continued to weigh heavily on its end customers in industries such as retail and transportation.

The company reported third-quarter (Q3) net income of $2.3 billion, or $2.58 a share, roughly in-line with analyst forecasts. However, the figure was down from earnings per share (EPS) of $2.68 in the same quarter last year. Revenues during the period slumped 2.5% to $17.56 billion and came in below the consensus mark of $17.54 billion. The company has now seen revenue decline in all but four of the last 33 quarters on an annualized basis.

Through yesterday’s close, IBM stock has a market capitalization of $111.8 billion, offers an enticing 5.18% dividend yield, and trades relatively flat on the year and over the past three months as of Oct. 20, 2020.

Company Spinoff

Earlier this month, IBM announced that it plans to spin off its IT outsourcing business to focus more closely on cloud computing and artificial intelligence (AI). The company said revenue for its cloud computing offerings grew 19% in the third quarter. “We are making strategic decisions, taking actions, and increasing investments today to better position our business and accelerate our top-line growth on a sustainable basis,” CEO Arvind Krishna told investors during the earnings call, per CNBC.

Wall Street View

Morgan Staley’s Katy L. Huberty raised her price target on IBM to $140 from $128 while maintaining her ‘Equal-weight’ on the stock after the firm revealed details of the spinoff. The analyst argues the company is moving in the right direction by reducing its reliance on its legacy businesses and investing more in technology growth areas like the cloud and AI. More broadly, the stock receives 4 ‘Buy’ ratings, 9 ‘Hold’ ratings, and 2 ‘Sell’ ratings. IBM currently trades 11.5% below Wall Street’s median 12-month price target of $140.

Technical Outlook and Trading Tactics

IBM shares have oscillated roughly within a 20-point range since early May, offering several opportunities for traders who favor rangebound strategies. More recently, price broke above both an eight-month downtrend line and the 200-day simple moving average (SMA) after the company announced the spinoff. Since then, profit-takers moved in, leading to a retracement back to the initial breakout point, which now becomes a crucial support area.

Active traders who take a long position here should look for a move back up to major resistance at $151.50 while managing risk with a stop-loss order placed somewhere below the blue downtrend line.

IBM Price Target Raised to $140 at Morgan Stanley, $180 in Best Case Scenario

Morgan Stanley analyst Katy L. Huberty raised her price target on IBM to $140 from $128, assigning an “Equal-weight” rating to the stock and said the world’s largest computer firm is making bolder moves by reducing dependency on legacy businesses and accelerating investment but there is still work to do.

American multinational technology company announced the tax-free spin-off of its Managed Infrastructure Services business, which is expected to be completed by the end of next year. Managed Infrastructure Services represents the majority of GTS, excluding the IBM Public Cloud and Technical Support Services businesses. The deal will create NewCo, a managed infrastructure services company with $19B TTM revenue that will focus on IT infrastructure modernization.

“Our SOTP reflects 15% upside, but we are cautious about recognizing this near-term. Without full transparency into the balance sheet and cost breakouts, we ran an initial SOTP based on EV/Sales to provide a preliminary view that points to $151/share valuation. We value each of IBM’s sub-segments separately based on a range of industry peers. Our analysis also credits IBM with unlocking an incremental $2.5B of revenue that was previously recorded in internal transactions, adding $5/share to valuation,” added Huberty, who also gave a price target of $180 in a best-case scenario.

“This aligns with a disclosure from the conference call for $19B NewCo revenue and $59B RemainCo revenue over the last 12 months, totalling $78B compared to a reported $75.5B. We include only operating cash and debt in our analysis given financing debt is supported by financing assets. Our updated PT of $140 (from $128 previously) blends our prior EV/FCF sales valuation and SOTP (50/50) to give partial credit to unlocking value in the SOTP given the spin announcement and increased focus on portfolio optimization.”

IBM’s shares rose 0.16% higher at $131.49 in pre-market trading on Friday; however, the stock is down about 2% so far this year.

Several other equity analysts have also updated their stock outlook. Independent Research raised their target price to $135.00 from $131.00 but rated hold; Credit Suisse upped their stock price forecast to $161 from $155. Citigroup boosted their target price on IBM to $140 from $120 and gave the company a “neutral” rating. JP Morgan Chase & Co. boosted their target price to $148 from $135 and gave the company a “neutral” rating.

Thirteen analysts forecast the average price in 12 months at $141.55 with a high forecast of $155.00 and a low forecast of $115.00. The average price target represents a 7.65% increase from the last price of $131.49. From those 13 equity analysts, five rated ‘Buy’, seven rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

“The spin of Infrastructure Services is a step in the right direction to drive sustainable revenue growth, but our conviction is reduced due to cautious results from our AlphaWise CIO surveys pointing to Services and AI most at risk of spending cuts and lower spending intentions with IBM following the Red Hat deal,” Morgan Stanley’s Huberty said.

“Near-term, we expect greater recurring revenue to pressure performance versus peers as IT spending rebounds off recent lows. Despite valuation below Services and Software peers, near-term macro factors and lack of conviction around IBM’s ability to stabilize revenue in the medium to long-term keep us Equal-weight.”

Upside risks: 1) Short-lived recession followed by pent up demand. 2) More material divestitures or M&A to accelerate growth. 3) IT spend upside, esp. Cloud & Cognitive, tied to Data Era projects. 4) Faster execution & upside on RHT synergies – highlighted by Morgan Stanley.

Downside risks: 1) Slowing GDP & IT spend drive sustained revenue declines. 2) Failure to monetize investments. 3) aaS growth stalls as mgmt focuses on margins. 4) Accelerated cloud cannibalization in core markets.

IBM Hits 4-Month High After Spin-off News

Dow component and perennial laggard International Business Machines Corp. (IBM) rallied to a 4-month high on Thursday after announcing it would accelerate its hybrid cloud growth strategy and spin off the rapidly-growing managed infrastructure services unit. The company also issued in-line Q3 2020 guidance, expecting to earn $2.58 per-share on $17.56 billion in revenue, with both metrics at or near consensus estimates.

IBM To Create Two Separate Entities

IBM will separate the Managed Infrastructure Services unit of its Global Technology Services division into a new public company, creating two separate entities, each with “strategic focus and flexibility to drive client and shareholder value”. The transaction will be executed as a tax-free spin-off to shareholders that’s expected to close by the end of 2021. The company said the long lead time is needed to meet SEC requirements, obtain tax guidance, and get final approval from the Board of Directors.

The company has suffered from slow growth and dull management since posting an all-time high in 2013 and has been one of the Dow’s worst performers since that time. The acquisition of Red Hat in October 2018 promised to accelerate the limp growth trajectory but chronic lethargy in the board room and executive chambers undermined bullish sentiment, triggering renewed selling pressure that dumped the stock to a 10-year low in March 2020.

Wall Street And Technical Outlook

Apathy best describes Wall Street consensus but that could change after today’s announcement. It’s now rated as a ‘Moderate Buy’, based upon 5 ‘Buy’, 6 ‘Hold’, and just one ‘Sell’ recommendation. Price targets currently range from a low of $115 to a street-high $155 while the stock is trading $7 below the $141 median target in Thursday’s U.S. session. Higher targets are likely but the deal isn’t expected to close for 15 months, potentially slowing the upgrade process.

IBM confirmed a breakdown through the 1999 high in the upper 130s during the first quarter selloff, establishing tough resistance in that price zone. The 50- and 200-month moving averages are narrowly-aligned at the same level, highlighting a formidable barrier that could restrict price action well into 2021. Even so, the news could generate sustained accumulation, rebuilding institutional support that abandoned this old school tech behemoth in the last decade.

Markets’ Weather Weekly: Сloud-Computing and Office Software Business Missed Quarterly Estimates.

Overview and trends

U.S. weekly jobless claims hit 1.4 million, the first increase since March, as spiking virus cases halt reopening plans.

Microsoft shares tumbled as much as 2.8% on Thursday after its cloud-computing and office software business missed quarterly estimates. The share price slump caused nearly $46 billion dollars erased from the company’s market capitalization. Intel Corporation (INTC) shares were trading lower yesterday despite the company reported better-than-expected second-quarter EPS and earnings results.

As a result, the tech-heavy Nasdaq Composite finished down 2.3%. The S&P 500 closed down 1.2%. It was their worst performance since June 26. The Dow (INDU) fell 1.3%, or 354 points, its worst day in two weeks.

Stocks weren’t the only assets in the red. The US dollar, as measured by the ICE US Dollar Index, fell 0.2%. The index hit its lowest level since September 2018.

So far quarterly earnings come very mixed. On positive side there are good reports and good responses to the earnings reports from IBM (IBM), Texas Instruments (TXN), Biogen (BIIB), KeyCorp (KEY), as well as yesterday’s miracle from Tesla (TSLA) and upbeat sales commentary from Best Buy (BBY).

Then again, a close candidate for why things are “bad” would be the negative responses to earnings reports from Bank of America (BAC), Netflix (NFLX), Snap (SNAP), Capital One (COF), United Airlines (UAL), and Interactive Brokers (IBKR). Microsoft (MSFT) stock sank over 2% after reporting earnings that beat Wall Street expectations in most ways except in a key business. All these stories prompt us to be extremely vigilant, resourceful and contemplative – correct instrument selection and trade direction is key to trading success through this period!

The week was full of important news. US stocks climbed on Wednesday on positive earnings numbers from Microsoft and Tesla and as traders weighed raging tensions between the U.S. and China, a potential legislative extension to unemployment benefits, and coronavirus vaccine news. Donald Trump’s administration ordered the abrupt closure of China’s consulate in Houston, and official Beijing promptly responded with its intention to close the U.S. consulate in Wuhan in a tit-for-tat game condemned by Beijing as outrageous and unprecedented.

The U.S. government has struck an agreement with Pfizer (PFE) and BioNTech (BNTX) for up to 600 million doses of their COVID vaccine candidate should it be approved. This optimistic expectation and early preparation effort have created positive sentiment in terms of thinking about light at the end of the tunnel down the road.

Trading ideas

The Gold/Silver complex has caught renewed bids this week, which was tipped off by the major gold ETF – SPDR Gold Trust – showing up on the “Doji Week” scan back on Monday. The Doji Week scan is designed to find stocks that are in narrow ranges compared to prior week’s activity that is geared up for a stronger directional move.

There are a number of Gold/Silver – related ETFs and stocks appearing on the Wide Range Breakouts, Power Up, and Overbought results today as the market gets behind their momentum against a sliding US Dollar. As investors’ classics – Barrick Gold (GLD) and Newmont Corp. (NEM) – look increasingly overvalued by both investment multiples and technically, new kids on the block, such as Agnico Eagle Mines (AEM) and Kinross Gold (KGC) look increasingly promising. The two latter stocks unveil single digit price-to-sales ratios as opposed to double-digit ones for Barrick and Newmont.

AT&T (T)

The largest American telecom AT&T (T) beat estimates by 4 cents a share, with quarterly earnings of 83 cents per share. Revenue was in line with forecasts. The company said the COVID-19 pandemic impacted results across all its businesses. Thus, WarnerMedia revenue fell 23% to $6.8 billion as the pandemic shut down film production and movie theaters. Group revenue was down 9% YoY to $41 billion, roughly in line with the $41.1 billion consensus. In contrast, AT&T’s HBO Max boasted by around 36 million active customers (including legacy HBO subscribers), picking up 3 million in the quarter. Cash from operations was $12.1 billion with free cash flow of healthy $7.6 billion.

Total dividend payout ratio remains slightly below 50%. Nevertheless, we must not forget about this telecom’s two extremely important properties: number one, it is the value high dividend stocks. And number two, it is classic defensive countercyclical stock. Given increasing odds of exacerbating recession and noting almost ridiculously cheap valuations at P/E of less than 15, dividend yield of 7% and price-to-cash-flow of just 8 (yes, this is a single-digit number, eight), at the current price level AT&T is perhaps one of very few smart medium term buys.

Vladimir Rojankovski, Grand Capital Chief Analyst

Middle-Week Screening. Seesaw on the Market. Silver and Alibaba are for long; Boeing is for short

Overview and trends

Across the pond, according to Reuters, European Union leaders did not reach solidarity on a coronavirus stimulus plan on Sunday, German Chancellor Angela Merkel said as marathon negotiations ran into a third day and acrimony mounted over the demands of rich but thrifty countries.

On Monday U.S. officials including Senate Majority Leader Mitch McConnell and Treasury Secretary Steven Mnuchin met in the White House to discuss another coronavirus stimulus package. Mnuchin reiterated he wanted to put a cap on spending to about 1 trillion dollars, well below House Speaker Nancy Pelosi’s $3.5 trillion relief plan. He also said the bill will focus on “kids and jobs and vaccines.” Meantime U.S. stocks were higher Monday as Wall Street came off its third straight week of gains and investors turned were busy analyzing more earnings reports including those from Halliburton and IBM (the latter beat estimates by a wide margin and added over 3% in post-market).

Yesterday stocks closed mostly higher on Wall Street Tuesday despite a final hour hiccup that nearly wiped out the market’s gains for the day. The S&P 500 added less than prominent 0.2%, after culminating as much as plus 0.8%. Banks, telecoms and energy stocks led the gains, offsetting mounting losses in technology stocks – something every smart investor must take seriously in the wake of more big techs’ like Apple, Amazon and Microsoft earnings underway – which pulled the Nasdaq index lower.

Oil prices joined precious metals’ extravaganza and rose, reaching the highest levels since March. West Texas Intermediate crude gained more than 3%, to 41 dollar 88 cents per barrel. Brent crude, in its turn, rose almost 3%, to 44 dollars 30 cents per barrel, at the U.S. market close.

Most investors wait as a savior for more financial stimuli from big governments and central banks to prop up stocks and bonds that are slowly losing steam.

Seemingly in response to that urge, many governments have already announced large amounts of additional fiscal support to keep tackling the pandemic. But S&P Global Ratings suggests that some countries, including the U.S., have shown “a degree of fiscal fatigue”. The problem is that additional spending will worsen the governments’ balance sheets, but they are still necessary to “prevent things from getting even worse.”

S&P Global Ratings earlier this month downgraded its forecast for the global economy. The agency now expects global GDP to shrink by 3.8% this year — worse than the 2.4% contraction it previously projected. So the central banks and governments really have little choice but to move on.

The end of the coronavirus pandemic could bring a large number of new asset managers. Recently published data from a research firm called eVestment showed that the number of new investment firm launches substituting some less lucky rivals tends to spike following economic crises.

Here’s why, according to data firm: As markets contract, asset management employees may be laid off. Instead of seeking out a new job, they start their own firms. Additionally, some of these employees leave their jobs voluntarily, with the goal of taking a new investment approach presented by market turmoil.

Conclusion: in order to survive hard times, one needs to be open to new trends and must possess the skill of distinguishing between winning and losing assets.

Trading ideas

Silver futures logged the highest finish in nearly 4 years at the beginning of the week, buoyed by expectations for further central bank stimulation that destroy the value of world major currencies and as the rise in global COVID-19 cases continues to threaten the economic recovery. September silver added almost a dollar, or 4.9% since July 17, to settle at $20.21 an ounce, the highest front-month contract finish since August 2016. Silver is known to be more choppy and volatile precious metal as compared to gold. But this year its uncharacteristic trade smoothness since mid-March leaves its older sister gold’s parameters derailed.

Alibaba’s affiliate company Ant Group, operating the mobile payment service Alipay, reportedly started the process of its initial public offering on the Hong Kong Stock Exchange and Shanghai’s Nasdaq-style STAR market simultaneously. In China Alipay is much more prominent than the namesake portal (alibaba.com) of Alibaba Group. Ant was previously valued at $150 billion after its last funding round in 2018, making it the world’s most valuable start-up.

Reportedly, Ant generated about 120 billion yuan or $17.1 billion dollars in revenue and nearly 17 billion yuan or $2.4 billion dollars in net profit last year. This is very good news for Alibaba stock which rose over 50% since April. Its earnings reporting day is scheduled for August 13, so there is plenty of time to judge this event keeping the stock in the portfolio.

Boeing’s reputation remains under siege even after the much-advertised test flight of Boeing 737 MAX couple of weeks ago. The company was forced to release a catastrophically damning set of documents to congressional investigators last week that included “conversations among Boeing pilots and other employees about software issues and other problems with flight simulators” for the 737 Max, the plane involved in two fatal crashes. The messages further complicate Boeing’s tense relationship with the Federal Aviation Administration, which can’t be satisfied to read the disdain with which Boeing treated the civil aviation regulators.

After the undisclosed outcome test flight, the Boeing share edged up almost 6.5% to $176, but its quarterly earnings date of July 29 will be Boeing’s judgement day, because there is nothing to cheer up its shareholders with. The company reported net loss of $5.72 a share in the previous quarter, which is expected to further deepen this time around, so Boeing is a definite short, which will be easy to cover at a profit thereafter.

For a look at all of today’s economic events, check out our economic calendar.

By Vladimir Rojankovski, Grand Capital Chief Analyst

EU Rescue Deal Reached, Equities Jump, Ted Baker Rises

A number of ‘frugal’ countries, most notably The Netherlands, were against the original plan of a €500 billion to €250 billion, grant to loan ratio, especially if the grants didn’t have any conditions. It was agreed upon that €390 billion will be issued as grants, and the remaining €360 billion will be dished out as loans. A system will be put in place to help ensure that grants will be used appropriately, but at the moment traders are just focused on the fact that an agreement was reached.

The FTSE 100 is above 6,300 and the DAX 30 hit its highest level in over four and a half months. The bullish mood this morning is also on account of the optimism that is circulating in relation to the progress being made on developing potential Covid-19 vaccines.

Ted Baker, like other companies that have a high street presence, have been hit hard by the lockdown, but the group revealed than online trading has been significantly higher than expected. For the 11 weeks until mid-July, total sales slumped by 50% but e-commerce sales rose by 35%. The online sales equated to 69% of total sales, which is a huge improvement on the 25% it made up last year. The fashion house stated that trading has been ahead of the base case scenario that was mapped out last month, and that it has made a good start on achieving its full year 2023 goals.

TalkTalk shares saw volatility this morning as the company confirmed it achieved a significant improvement in average revenue per user (ARPU) in June and July, which promoted the company to say its expects to see an improvement in APRU for the rest of the year.

The pandemic impacted the business and it expects the cost to be £15 million, as bad debts are likely to be an issue. Stripping out voice usage and the pandemic impact, there would have been no difference between fourth quarter and first quarter ARPU. The group saw a decline in net debt and it expects earnings to remain stable or possibly even grow a little. The stock initially traded higher but it is now in the red.

AO World revealed an employee incentive plan. The scheme is designed to encourage employers to deliver a better service to customers as well as loyalty to the group. Essentially, if the market capitalisation is driven beyond a certain level – 30% higher from Monday’s valuation at the close – 10% of the additional value will be distributed to the employees as a part of the scheme. The measure is likely to boost morale and in turn help the business.

GVC shares are in the red this morning as HMRC announced it is expanding its investigation into its former Turkish online business. The update from the gaming company was short, but it said the UK tax authority is examining any ‘potential corporate offending’ by an entity within the GVC group.

Bloomsbury’s Publishing revealed an 18% rise in 4 month revenue to the end of June. The lockdown helped digital sales surge by over 60%.

The continued weakness in the US dollar has helped GBP/USD. In June, UK public sector net borrowing was £34.8 billion, while economists were expecting £34.3 billion. The May reading was revised to £44.7 billion, from £54.5 billion.

IBM shares pushed higher in post-market trading last night following the release of well-received second quarter results. EPS was $2.18, topping the $2.07 forecast. On a yearly basis, revenue slipped by 5% to $18.12 billion, but that exceeded the $17.72 billion consensus estimate. Gross margin was 48%, up from 45.1% in the first quarter. The cloud and cognitive division registered a 3% rise in revenue to $5.75 billion, and that was fractionally ahead of analysts’ estimates.

Snap is in focus as it will post its second quarter numbers tonight. The first quarter loss was $306 million, which was a slight improvement on the $310 million loss that was posted one year previous. Traders will be keen to see if the loss narrows further. In the first three months, ARPU increased by 20%, while total revenue rose by 44%.

We are expecting the Dow Jones to open 220 points up at 26,900, and the S&P 500 is called up 24 points at 3,275.

By David Madden (Market Analyst at CMC Markets UK)

IBM Reports Better Than Feared Q2 Earnings; Target Price $150 in a Best-Case Scenario

International Business Machines Corporation (IBM), one of the largest technology and consulting companies in the world, reported better than feared earnings results in the second quarter and signalled that several quarters of sustained higher cloud computing business growth could help build credibility and confidence in a more sustained revenue growth story amid their digital shift due to the COVID-19 pandemic.

IBM’s total revenue declined 5.4% to $18.12 billion but was above Wall Street’s forecast of $17.72 billion. Excluding the impact from currency and business divestitures, revenue fell 1.9%. However, revenue from the cloud business jumped 30% to $6.3 billion during the quarter.

Excluding items, the company earned $2.18 per share, above estimates of $2.07. The company reported a total cloud revenue of $23.5 billion over the last 12 months, up 20%. Net cash from operating activities was $15.1 billion and free cash flow was $11.5 billion over the last 12 months.

Executives’ comments

“Our clients see the value of IBM’s hybrid cloud platform, based on open technologies, at a time of unprecedented business disruption,” Arvind Krishna, IBM chief executive officer said in a press release.

“We are committed to building, with a growing ecosystem of partners, an enduring hybrid cloud platform that will serve as a powerful catalyst for innovation for our clients and the world.”

“Our prudent financial management in these turbulent times enabled us to expand our gross profit margin, generate strong free cash flow and improve our liquidity position,” James Kavanaugh, IBM senior vice president and chief financial officer said in a press release.

“We have the financial flexibility to continue to invest in our business and return value to our shareholders through our dividend policy.”

IBM stock forecast

Eight analysts forecast the average price in 12 months at $135.43 with a high forecast of $150.00 and a low forecast of $111.00. The average price target represents a 7.17% increase from the last price of $126.37. From those eight, four analysts rated ‘Buy’, four rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $128 with a high of $161 under a bull scenario and $75 under the worst-case scenario. IBM had its price objective boosted by equities researchers at Evercore ISI to $137 from $130; Independent research lower the price target to $135.00 from $160.00.

Other equity analysts also recently updated their stock outlook. IBM had its target price dropped by research analysts at UBS Group from $140 to $120. The brokerage presently has a “neutral” rating on the technology company’s stock. Wedbush dropped their target price on shares of IBM from $155.00 to $140.00 and set a “neutral” rating on the stock. Credit Suisse Group set a $150.00 price objective on shares of IBM and gave the stock a “buy” rating.

We second UBS Group and Wedbush on IBM stock outlook. We also think it is good to hold for now as 50-day Moving Average and 100-200-day MACD Oscillator signals bearishness.

Analyst view

“IBM reported better than feared results though uncertain virus case curve limits a return to full-year guidance. Cloud was a bright spot, with pro forma growth of 20%, up 10 points from 1Q20. After netting out several cross currents, our 2H20 estimates are largely unchanged,” said Katy Huberty equity analyst at Morgan Stanley.

“Cautious results from our recent AlphaWise CIO surveys that point to Services and AI most at risk of spending cuts, along with our 4Q19 survey highlighting the risk of IBM share loss in Software and Services reduces our confidence to sustainably grow revenue. Although greater recurring revenue (~60%) drives less downside risk to the top line relative to the rest of our coverage group in a COVID-recession, lack of conviction around IBM’s ability to stabilize revenue in the medium to long-term keeps us Equal-weight.”

Upside and Downside risks

Short-lived recession followed by pent up demand; Material divestiture to accelerate the pivot to growth; IT spend upside, especially Cloud and Cognitive, tied to Data Era projects and Faster execution & upside on RHT synergies, Morgan Stanley highlighted as upside risks to IBM.

Slowing GDP and IT spend drive sustained revenue declines; Failure to monetize investments; SaaS growth stalls as management focuses on margins and Accelerated cloud cannibalization in core markets, Morgan Stanley highlighted as downside risks.

Stocks Mixed Over Lack of EU Rescue Deal

The original proposal was that €500 billion be distributed as grants, and the remaining €250 billion be issued as loans. A few northern European members, Austria, Denmark, The Netherlands and Sweden, were opposed to such a high proportion of grants being issued. The group have been called the ‘frugal four’, and they are keen for conditions to be attached to the grants.

Talks continued into the early hours of today, and it is understood that some of the ‘frugal’ group are pushing for €390 billion in grants and €360 billion in loans. It was reported that France are keen for €400 billion is grants – so that is where the division lies. Some progress has been made, which is encouraging, and negotiations are expected to carry on this afternoon.

The EU have a track record of a lot of in-house haggling, but in the end a deal is usually struck. Italy and Spain had high debt levels going into the pandemic, and given how hard their economies have been hit on account of the health crisis, their debt is poised to jump. The Mediterranean countries have a higher dependency on tourism, so they will feel the pain of higher debt levels more so than their northern counterparts.

Future, the media company, confirmed the integration of TI Media is going well. Future will repay furlough funds to the government. This not only adds to their public image, but it underlines their financial health. The group are in talks with employees about reducing the size of the workforce. The consensus estimate for the full year adjusted EBITDA is £86.3-£91 million, and firm said it expects earnings to be at the top end of the forecasts. Keep in mind that last year’s figure was £54.5 million.

AstraZeneca shares are higher again on continued optimism in relation to the drug that they are working on with the University of Oxford – it is tipped as a possible Covid-19 vaccine. The Lancet media journal is expected to publish trial data on the drug today.

In terms of index points, BP and Royal Dutch Shell are some of the biggest fallers on the FTSE 100. The underlying oil market is down over 1% as concerns the health crisis will impact demand has hit the energy. It was reported that Japan’s oil imports fell by 14.7% in June, on an annual basis.

According to Righmove, house prices in Great Britain have risen by 2.4% since March. The annual reading was 3.7% growth, its highest growth rate since late 2016. The property portal said that customer enquiries are up 75% when compared with last year. It is clear the reopening of the housing market has unleashed pent up demand. Most of the UK house builders are higher this morning and Berkeley Group and Taylor Wimpey are some of the biggest gainers.

It was reported that Marks and Spencer are to announce hundreds of job cuts this week. One newspaper claimed that Ted Baker will lower its headcount by 500.

British American Tobacco shares have sold off following the downgrade by Jefferies. The bank has lowered its rating to hold from buy, and the price target was cut to 3,000 from 4,800p.

The euro had gained ground against the US dollar and the pound as hopes are growing for the EU to agree on the terms of the €750 billion rescue fund. The talks will continue today. It wouldn’t be a European meeting if it didn’t drag on. The gap between the two sides is narrowing, so currency traders took that as a sign that we are nearing a deal. Last month, German PPI was -1.8% and that was an improvement in the -2.2% registered in May, but economists were expected -1.5%.

IBM will be in focus as it will post its second quarter results tonight. The first quarter update was not well received. Revenue slipped by 3.4% to $17.57 billion, undershooting the $17.62 billion forecast. EPS were $1.84, and that topped the $1.80 estimate. The cloud and cognitive unit saw a 5.5% rise in revenue to $5.24 billion, but that fell short of the $5.30 billion consensus estimate.

We are expecting the Dow Jones to open 51 points lower at 26,620, and the S&P 500 is called down 6 points at 3,218.

By David Madden (Market Analyst at CMC Markets UK)

US Stocks: Cross-Section Against the Coronavirus

The latter, whatever its gravity will be, is inevitable, as per Mrs. Schuchat. In this context, let’s have a look at different sectors of the American stock market to see how they react to this natural disaster so far.

S&P 500

Until recently, the S&P 500 was giving quite a limited reaction to the Coronavirus. In fact, the latter never stopped the index to hit another all-time high at 3400 points on 20 February. But after that, it index slumped to 3090 points, making almost a 10% drop. As such, it is still a weak indication of something unique to the Coronavirus as the index does go into a dive from time to time even below 200-MA. That’s why let’s abstain from making conclusions at this moment, but instead, take this 10% drop as a “normal” reaction of the American stock market so far – we will measure other market sectors and stocks against this figure.

Banking

The Bank of American dropped from the recent $35.75 per share to $30.80, while JP Morgan made a slide from $141 down to $125.50. The former made a 14% decrease in value, the latter – 11%. Both results are more than 10% with the S&P 500, however, we have to take into account the “natural” volatility of each share – none of them are particularly steady in the upward direction.

Retail/e-commerce

Amazon’s share fell by 10% – it currently trades at $1954 against the recent $2190. EBay is now at $36.50, which is 7% lower than $39.25, where it was days before. That falls right into the 10% decrease of the S&P, making even an incline towards milder reaction than that of the banking industry. But on average, this sector presents no significant deviation from what’s happening in the market on the grand scale.

IT

Computers and processors seem to be hit stronger than the other sectors. Intel drops by 14%, Microsoft by 23.5%, and IBM (not shown on the chart) – 12.5%. That’s a significant difference from the 10% of S&P, and there may be reasons for that.

So far we have observed banking and the e-commerce sectors. American banking will only be damaged indirectly by the Coronavirus, unless domestic chains, facilities, and personnel are hit by the Covid-19 inside of the mainland US to an extent comparable to that of China. Directly, there is little damage to American banks and their performance by the disaster in China – they are affected only on a global scale. Similar, but just slightly stronger, is the relation of the American e-commerce sector to the Chinese troubles.

Only because these troubles harm global purchase orders, sales of corporations like Amazon and eBay will be somewhat reduced. But again, to a limited extent because the portion of global e-commerce purchases originating from China is relatively moderate compared to that of the domestic sales in the US. And the latter has shown good results in the Q4-2019 thanks to the holiday season. That’s why those two sectors are only receiving damage indirectly, just so much as the global landscape is affected by the virus.

On the contrary, the American IT industry is directly affected by the happenings in China. Therefore, they receive a double impact: one which comes from the global slowdown in operations, and the second one coming from disruptions inside mainland China.

This is one of the factors peculiar specifically to IT: a large portion of supply chain and production facilities for those American companies is either located in China or has essential routes or parts originating from China. Hence, if the first two observed sectors of the US stock market just will have their global sales somewhat reduced, IT will not only see its sales reduced but also certain production and supply processes stalled. Thus, a stronger impact and lower dives occure in this market sector.

Conclusion

We could be more specific with our analysis of the US stock market to find many more correlations with the Coronavirus and its effects. This short review was done merely to show that different sectors of the US economy have different nature, and although all of them get affected by the global events such as this virus in a similar way, the extent of the reaction is unique to each and is defined by its internal configuration.

That’s why it is important to do fundamental analysis specific to each stock if you want to be precise with preparing your trade positions and tactics. From our side, we will keep you supplied with enough information to run such analysis.

This post is written and submitted by FBS Markets for informational purposes only. In no way shall it be interpreted or construed to create any warranties of any kind, including an offer to buy or sell any currencies or other instruments. 


The views and ideas shared in this article are deemed reliable and based on the most up-to-date and trustworthy sources. However, the company does not take any responsibility for accuracy and completeness of the information, and the views expressed in the article may be subject to change without prior notice. 

Apple Underwhelms as Share Price Rises, But It is September

The Trend is (always) King

September is always an interesting month for APPLE shareholders as the company traditionally announces new products and more recently, services to be launched and available for the important Q4 Christmas sales. This year was no different. Apple shares have moved with this year’s technology pack with highs posted following this week’s event over $223 and lows during August of $192, as the 50-day moving average proved an important support level.

September 10th was the launch event this year with upgrades announced for a raft of products from the iPhone (11), iPads and MacBook through to the Air Pods and Apple Watch (5). However, there were no new products announced. Simply upgrades to the existing lineup. However, what buoyed investors was something not normally announced at these September events, price cuts. There were reductions for the iPhone 11 range, heavy discounts for the Apple Watch (3) and the big surprise, APPLE TV+ at $4.99 a month, half the price many analysts were expecting and new Arcade game subscription service which will also be priced at just $4.99 per month and include a free one-month trial.

Hardware design and functionality have always been at the core of what Apple does and the big move in recent years has been away from this dominance of hardware (even though the iPhone still accounts for over 60% of revenues) to invest significantly in services. The initial move was a partnership in 2015 with IBM and Cisco to try to break in the corporate market; this has been followed by Apple Pay and more recently the long awaited upgrade for Apple TV and this week Apple Arcade.

Apple TV+ is scheduled for release November 1, and initially it was only to be in the USA but will now be available to 100 countries at an extremely competitive $4.99 per month. Apple is entering a very crowded video-streaming marketplace, currently dominated by Netflix, but including Amazon and Disney. Apple Services is a growing revenue stream within the technology giant and TV+ marks its latest attempt to diversify its dependence from the ubiquitous iPhone. The aggressive pricing structuring, undercutting its competitors, is a break from traditional Apple pricing models.

The US-China trade war hangs over all US consumer products and companies but Apple seems to have the ability to keep both Washington and Beijing on side.

The market clearly liked what disappointed the tech community this week as the shares rallied significantly following the launch. Apple stock trades up 41.7% year to date, 11.53% just this month and 6.88% this week. Apple’s market capitalization is now back over $1 trillion.

However, September being the final month of the third quarter it is traditionally the weakest performer of the entire year. Over the last twenty-one years, the USA30, USA100 and USA500 have all recorded average losses for September, with gains in the first half evaporating in the second half and the final week in particular. The rise this week for Apple shares is a typical post launch event rally. The major Wall Street banks have price targets for the stock ranging from Nomura at $175 to Morgan Stanley at $247.

Apple reports Q4 earnings for the end of September on October 29 and current expectations are for revenues to top $62.55 billion and EPS to top $2.80.

Stuart Cowell, Head Market Analyst at HotForex

(read our HotForex Review)

Cryptocurrencies and Their Consistent Robbery! Are They Really “Indomitable”? What are Stable Coins?

Cryptos’ has seen a widespread green in the last two years as a result of a consistent fight for a right. The power of the people and for the people has been cleverly translated as a “digital chaos”, by the central banks and the chattering governments. However, what stays a fact, still, is the presence of cryptocurrencies, they are still there and they continue to breed.

“Virtual Currencies may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.”- Ben Bernanke

BTC dominance is slowly fading- a window of opportunity for other cryptocurrencies; it’s future, as a consummation of its controversial popularity, remains still buoyant. BTC, at the time of writing, is at 6700.23 USD, striving to hold its gains, and, Ether, another crippled yet principle performer, breathes through its turtle pace, at 290. 70 USD. These digital assets, nonetheless, are riding towards a momentum that has been taken seriously by investors.

The whole Crypto evolution, surviving on Blockchain- a decentralized, incorruptible, and secure public ledger, highlights a lot of questions, all of which, I answer one by one! Starting with crypto theft!

Cryptocurrency theft

Around $ 1 Billion cryptocurrencies ware stolen in the first half of 2018; disclaimer, it was really easy to do, according to an article by CNBC and reports curated by Carbon Black. The malware that is used and patterned along with a customer service is as cheap as $ 1.04 on the dark web and costs $224 on the surface web. This means that the crypto ecology is susceptible to an easy manipulation which depends directly on any frustrated yet talented hacker.

Carbon Black Security strategist Rick McElroy, in an interview with CNBC, states: “It’s surprising just how easy it is without any tech skill to commit cybercrimes like ransomware,” and continues to quote “It’s not always these large nefarious groups, it’s in anybody’s hands.”

These thefts come from crime groups dedicated to extorting exchanges and companies while organized cartels are also responsible for these sudden strangling of cryptocurrencies. Since cryptocurrencies are not entirely bulletproof, a fact only crypto ideated audience knows, the chances of anyone sitting in any Atlantic corner of the world, having decent coding skills is capable of dissecting the digital currency, for a reason as nominal to paying the rent.

With the theft news becoming a significant resident of all news channels critical of Blockchain and Cryptocurrencies, another question comes up;

Which cryptocurrencies can survive in the real economy?

Since not much is known about the overwhelming majority of cryptocurrencies so far, which means the fate of around 1,385 coins in the markets today is unpredictable; still, they are being bid up to multi-million dollar valuations. Let’s talk facts with an example here, Dogecoin, created as a fun response or a parody to the Bitcoin boom, at present has a valuation of $ 1.6 billion (at the time of writing). What’s more surprising is that the coin has no use case to back its accidental fame and yet investors are ready to make a wild bet with Dogecoin.

It is easy to determine the most prominent survivors in the list of most-traded cryptocurrencies.

Here are some of my predictions:

  1. Bitcoin: Emerging more of a store in value, Bitcoin the original cryptocurrency will stay and will continue to survive the market crash in future.
  2. BTC and Litecoin: Preferred for more daily transactions, both the cryptocurrencies are fast becoming a valid choice.
  3. Ether: Built on Ethereum’s universe of decentralized applications, the cryptocurrency is fast gaining traction, and has emerged out of its haunting past of continuous hacks.
  4. Dash: With its innovations in mining and fast processing, Dash has come out from the uniform of a fresher cryptocurrency and has promoted itself to a revolutionary digital asset.

Dash CEO, Ryan Taylor claims confidentiality: “We are the largest (cryptocurrency) in the space that is positioning ourselves as a payment network”.

  1. Stable Coins: Created as a resolution to cryptocurrency volatility.

Knowing that above coins have somewhere a future, the next thing I intend to discuss is what significant changes are new companies making to save crypto world an ongoing embarrassment.

What progress has companies made so far to ensure the safety of cryptocurrencies?

Since now we know, the history, present acceptance, issues, existing crypto theft trauma and rapid exchange crash, the next question arises which can fight for the crypto stakes, that is, what is the solution to all this?

Utility Tokens or more popularly known as User Tokens/App Tokens are not designed as investments unlike other ICOs, instead, they are designed keeping in mind the barter system. According to Strategic Coin, a startup can actually sell “digital coupons” in an exchange for its services to its clients or customers.

As an example, Filecoin, has raised around $ 257 million which had happened by selling tokens that offered users to have access to its own decentralized cloud storage platform. An innovative and bold step to promote service offerings other in an exchange of digital coupons which provokes trust in the whole crypto universe.

On the other hand, Rockz, a fully transparent asset-backed coin, claims to bring solidity, and trust in the crypto network and looks at changing the present standpoint of cryptocurrency. The network works on a 95% physical paper deposited in vaults and high-security bunker claims to fully support its investors and customers in case of bankruptcy. This means the value is stored physically which a sense of freedom to its users. How effective this sensible and much-needed change turns out to be, has to be judged.

Other than, Rockz, Security Token Offerings or STOs are the new kids on the crypto block. In the real world of investing, STOs works on the proposition of securing the money of investors as it is more fraud-proof and cannot be manipulated easily.

“Securities Token Offering aka STO is the next step towards legitimizing investor offering schemes for digital asset initiatives.”

Apart from these ICOs playing their luck, the crypto market also has something “stable”, part of which I discussed in the first half of this read. Here’s my screening of the coin so far.


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The Stable Coins Debate: Trustworthy coins with low volatility or just highly anticipated market tool.

As the name suggests, Stable coins were launched in the market, as an attempt to maintain steady valuations in an era where cryptocurrencies rise and fall every single second. Since these unpredictable swings are nowhere characteristics of a currency, at the end they become impractical to use.

What are Stable Coins: A currency generally used as a mode of storage of value and a medium of exchange, with a stable value. Stable coins were launched in an attempt to accomplish the ideal currency behavior, that is spending the coins, and not storing them with minimum inflation.

I feel Stable coins are more of a representer, an ambassador for cryptocurrencies, as its increasing adoption will act as a catalyst to popularize the daily use of cryptocurrencies, and not store them. The stable alternative to other crypto coins, Stable coins, holds the capability to promote trading of goods and services, established over a blockchain application and assist in integrating financial applications as well as support market predictions.

According to Rafael Cosman, founder, and CEO of Trust Token comments on the potential of Stable Coins: “Stable coins are one of the keys to bringing the benefits of cryptocurrencies to everyday people, both in terms of price stability and decentralization of capital”. 

What comes ahead in my verification is how the validity of stable coins be ensured in future?

The “Stability” of Stable coins can eventually strengthen the entire backbone of international banking, as they give a liberty to update the core compliance structure of banking. Based on the decentralized moto, Stable coins will eventually uplift efficiency, and promote transparency further improving the user experience.

As an example, Stronghold USD is at present launching a new stable coin of their own based on Stellar Network. After a successful launch, this would become the first venture-backed up by USD token. In my opinion, this is a bold step by IBM, and it is not a surprise since IBM has its own Blockchain Platform launched within these two years of crypto and blockchain fame.

Based on a similar pattern, Rockz has planned to issue a stable Rockz token, backed by the Swiss franc, which allows the cryptocurrency community or audience to get a reliable and legal tool. This can be used for buying and selling of goods and services, as well as fixating market profits which can, on the other hand, generate crypto trust that is missing from the market.

Before closing this article, I want to discuss one more issue, that is recurring like a bad migraine in the crypto universe.

Wallets, Exchanges, and Digital Banks to secure cryptocurrencies; How true are they?

The psychological impact of continuous crypto robbery has created a crack in the trust investors had in blockchain earlier, and the audience as well. As Investopedia reveals, the most high-profile hacks of this year are Bithumb: $30 million, BitGrail: $195 million, Coincheck: $534 million, and Coinrail: $37.2 million.

Exchange crash and crypto theft are shaking the faith of the investors lately and with these vibrant hacks, a frozen effect is immediately seen on the crypto values. From where I see, it cannot be said that nothing can be done or is not done, cyber attack is as old as the internet and will continue to exist, if not tackled sooner.

Cryptocurrencies have a big future and they might be mankind’s only chance to have control in their own hands. They are not perfect yet, but it is a good thing, that they are there. Crypto world is indeed capable of trust, let’s cherish the opportunity it provides.

Investors Should Be Watching Guidance During This Earnings Season

Earnings season kicked-off on Tuesday with concerns over the lingering trade dispute between the United States and its trading partners in China and the European Union, taking a backseat, at least temporarily.

According to FactSet, S&P 500 second-quarter earnings are expected to grow by 20 percent. This would put them in a position to challenge the 24 percent jump reported during the first calendar quarter.

On Monday, the first day back from the extended Independence Day holiday, the blue chip Dow Jones Industrial Average posted a more than 300 point gain, mostly on the back of a strong financial sector, led by bank stocks.

It’s fitting that the banks finished the strongest because they benefit the most from a rising interest rate environment.

Today’s price action is being drive early by the results of more than 20 companies in the S&P 500 Index. The surprise of the day so far has been the results of PepsiCo. The soft drink and snacks manufacturer posted better-than-expected earnings, sending its shares higher by more than 2 percent. PepsiCo also provided positive guidance, saying it expects “substantially higher” earnings growth for fiscal fourth quarter.

While Pepsi came out hot right from the box this morning, other companies should be overlooked. According to The Earnings Scout CEO Nick Raich, 86 percent of the companies that have already reported exceeded their quarterly earnings expectations, posting 24.08 percent year-over-year growth.

Raich said, “Those are phenomenal numbers, but as we said they do not matter for current stock prices.” “This is why we are looking at the changes in earnings estimates after companies report and comparing them to prior periods to determine if the underlying trend in profit expectations can stay on an improving path.”

This is a very important point because earnings actually represent stale data. They represent the earnings from last quarter. The third and fourth quarter results will be the first during the period of full tariffs from the U.S. on Chinese goods and the retaliatory tariffs on U.S. goods from China. They will tell the actual story about the impact of the tariffs on company earnings.


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So at this time, investors should be looking beyond last quarter earnings and at any guidance from companies that mention the impact of the tariffs. It is possible that the market may not have fully priced in the possibility of a full-blown trade war just yet.

We do know from the way the three major indexes have performed that there have been asset allocation plays going on in the market. We also know that the weightings of the indexes have had a major influence on their performances so far this year.

The NASDAQ Composite, for example, faces little exposure to the tariffs, so it is up substantially this year and threatening a new all-time high this morning. The Dow Jones Industrial Average, however, is being weighed down by several stocks that face exposure from tariffs. The Dow is trading barely higher this year.

If the market begins to fully price in the impact of the tariffs then the Dow is likely to turn negative for the year, followed closely by the S&P 500 Index. Investors shouldn’t wait for third or fourth quarter earnings to tell them to bailout of certain stocks. They should be watching the future guidance during this current earnings season.

IBM Common Stock (NYSE:IBM): Soft Q1 Results Rattles Investors, Triggers Sell-off

IBM Q1 Results

Big Blue reported earnings per share of $2.45 a share slightly above estimates of $2.42 a share. Revenue came in at $19.07 billion also beating Wall Street expectations of $18.83 billion and representing a 5% year over year growth.

The adjusted gross margin in the quarter fell 70 basis points annually to 43.7%. It also decreased 30 basis points to 44.1% on the tech giant backing out restructuring costs for System’s hardware segment.  Both metrics were below the 45.1% consensus estimate.

Investors Concern

A point of concern among investors has to do with the fact that the company’s earnings received a boost from a one-time tax gain of $817 million. Chief Financial Officer, James Kavanaugh, reiterating that investors should not count on a continued boost from mainframe sales to boost earnings, also went a long way in spooking the markets, triggering the sell-off.

“As we enter the second half, we have a significant headwind on mix because we are not counting on more than a typical mainframe cycle.  It would not be prudent for analysts to predict or to predicate our $13.80 [2018] guidance on breaking mainframe cycle,” said Mr. Kavanaugh.

IBMs earnings were much softer than what its peers have been reporting raising further concerns whether the company is experiencing slow growth. A number of enterprise tech firms have posted strong earnings reports as IT spend continues to rise.

Focus On Strategic Businesses

However, IBM wants investors to pay attention and judge the company based on its efforts in what it calls strategic imperatives that accounted for 47% of its total revenue. This segment comprises of cloud-computing, analytics, mobile, and security business. The division also includes software analytics and the highly touted artificial intelligence platform, Watson

However, it appears the strategic businesses are not growing as fast as they ought to. The crucial businesses grew by 15% in the quarter, in line with estimates, even though analysts were expecting modest beat given that IBM future depends on them

Watson which is the first commercially available AI platform that can process vast amounts of big data and interact in natural language has started to live up to expectation be it at a slow pace. In the first quarter, it was a major contributing factor, helping drive double-digit growth.

Investors have not been forgiving of IBM in the market in part because the stock sat out a massive 2-year tech rally.  The stock has consistently traded sideways, as others hit higher highs.  Warren Buffett through his investment firm, Berkshire Hathaway Inc. (Class B NYSE:BRK.B), offloading nearly all of his shares in the company has also gone a long way in denting the stock’s outlook on Wall Street.