Earnings Previews: IBM, Kinder Morgan, Las Vegas Sands, Tesla

Markets

Of 30 companies in our watchlist that reported earnings late Monday or before markets opened Tuesday, two posted a negative surprise on earnings and one met expectations exactly. Six missed revenue estimates and seven others hit sales estimates exactly. All in all, a good performance.

We already have previewed five companies scheduled to report September-quarter results after markets close Tuesday and before they open again Wednesday: Baker Hughes, Netflix, NextEra Energy, United Airlines and Verizon.

Here are previews of four companies reporting quarterly results after markets close Wednesday.

IBM

Shares of International Business Machines Corp. (NYSE: IBM) have added nearly 19% over the past 12 months. That’s somewhat better than the 15.8% gain for the stock since before the pandemic and a gain of more than 17% since January of this year.

Next month, IBM is going to spin off its managed infrastructure business into a new publicly traded firm called Kyndryl. Big Blue announced the spin-off a year ago, noting that the deal would leave it more focused on its hybrid cloud initiatives. Although revenue will drop following the spin-off, free cash flow is expected to remain the same. That’s always good news for shareholders, provided, of course, that it actually happens.

As might be expected, analysts are in wait-and-see mode regarding IBM stock. Of 17 surveyed brokerages covering the firm, 11 have a Hold rating on the shares and five rate the stock a Buy or Strong Buy. At a recent price of around $141.70, the implied upside based on a median price target of $150 is about 5.9%. At the high price target of $176, the implied upside is about 24%.

Third-quarter revenue is expected to come in at $17.81 billion, which would be down 5% sequentially but up 1.4% year over year. Adjusted earnings per share (EPS) are forecast at $2.52, up 8% sequentially and down 2.3% year over year. The current full-year estimates call for EPS of $10.70, up 23.4%, on sales of $75.2 billion, or 2.1% higher.

IBM stock trades at 13.5 times expected 2021 EPS, 12.2 times estimated 2022 earnings and 11.4 times estimated 2023 earnings. The stock’s 52-week range is $105.92 to $152.84. IBM pays an annual dividend of $6.56 (yield of 4.54%).

Kinder Morgan

Energy infrastructure company Kinder Morgan Inc. (NYSE: KMI) has added more than 54% to its share price over the past 12 months, about equal to the 55% gain put up by rival Enterprise Products Partners and well short of the 81.6% boost at Energy Transfer.

The company generates just over two-thirds of its profits from moving natural gas through its pipelines. The pipelines are fully (or nearly so) committed, which is both good and not so good. It’s good for obvious reasons; it’s not so good because it means Kinder Morgan must expand in order to grow and, outside of Texas and Louisiana, new pipelines face a lot of hurdles.

The growth issue probably contributes significantly to the lukewarm analyst outlook. Of 25 brokerages covering the company, 14 rate the stock a Hold and another seven have Buy or Strong Buy ratings. That’s not a ringing vote of confidence. At a price of around $18.50, the upside potential based on a median price target of $19 is 2.7%. At the high price target of $22, the implied upside is 15.9%.

Consensus estimates call for third-quarter revenue of $3.22 billion, up 2.3% sequentially and 10.2% year over year, and EPS of $0.25, up 6.7% sequentially and 19% year over year. For fiscal full 2021, analysts currently forecast EPS of $1.32, up 50.3%, on sales of $14.98 billion.

The stock trades at 14.0 times expected 2021 EPS, 17.9 times estimated 2022 earnings and 16.7 times estimated 2023 earnings. The stock’s 52-week range is $11.45 to $19.29. Kinder Morgan pays an annual dividend of $5.85 (yield of 5.85%). It’s worth noting that Enterprise Products and Energy Transfer pay higher distributions because they are organized as limited partnerships.

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