International Business Machines Corporation (IBM - Free Report) is set to report fourth-quarter 2016 results on Jan 19, after the closing bell. Last quarter, the company posted a positive earnings surprise of 2.49%. In the past four quarters, the company has posted an average positive earnings surprise of 4.67%.

However, we note that IBM has underperformed the Zacks Computer-Integrated Systems industry in the last one year. IBM shares have increased 28.69% as compared with the industry’s gain of 40.97% during the period.

Let’s see how things are shaping up for this announcement.

Factors at Play

IBM is going through a tough time, attributable to its ongoing business model transition to cloud which is heavily time consuming. Further, sluggish IT spending particularly on on-premises and data center hardware along with foreign exchange volatility remains concerns. Moreover, intensifying competition in the industry is a major headwind.

Nevertheless, IBM's strategic growth initiatives, including its cognitive solutions, cloud computing, mobile and social business are expected to drive growth.

International Business Machines Corporation Price and EPS Surprise

International Business Machines Corporation Price and EPS Surprise | International Business Machines Corporation Quote

Additionally, the company’s policy of making strategic acquisitions will lead to incremental revenues, strengthening its technology leadership and resulting in a more favorable mix of business.

Strong cash flow generation is also expected to provide the financial flexibility required for strategic investments in a changing business environment.

Earnings Whispers

Our proven model does not conclusively show that IBM will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $4.91. Hence, the difference is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: IBM carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

You could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

Corning Inc. (GLW - Free Report) , with an Earnings ESP of +6.98% and a Zacks Rank #1.

Applied Materials (AMAT - Free Report) , with an Earnings ESP of +6.06% and a Zacks Rank #1.

Seagate Technology (STX - Free Report) , with an Earnings ESP of +1.87% and a Zacks Rank #1.