Yesterday after the close, IBM reported second-quarter results.  Big Blue beat on both the top and bottom line with EPS coming in at $2.18 compared to estimates of $2.09 and revenues were $401.9 million above estimates. Although IBM beat on both the top and bottom line this quarter, EPS and sales have been grinding lower over the past several years as shown in the charts from our Earnings Explorer below. In fact, this quarter still marked EPS down 31% YoY and sales down over 5% YoY.

When it comes to stock price reaction, that beat comes during what has historically been the strongest quarter for IBM.  Q2 earnings days have averaged the largest gains of any quarter in terms of the gap up, open to close change, and full-day change.  Not only does Q2 experience the largest gains but it is also the quarter that IBM trades higher the most frequently.  IBM has traded higher on Q2 earning days 72% of the time.  Conversely, IBM has only seen shares trade higher on its Q1 report in April just 21% of the time.

Turning to today, the stock was trading up as much as 6.85% post-market shortly after earnings came out but has reversed some of those gains overnight and is now looking to gap up by 4.75%. That would make for the seventh-largest gap up on earnings for IBM since at least 2001.  None of those other largest gaps up happened on a Q2 earnings report.

Looking through the history of IBM in our Earnings Explorer database, IBM has beaten both EPS and revenues 30 times.  On average, the stock has gapped up 0.67% to be met with minor selling during the day to finish up 0.65%.  Of those 30 times, the 6 occurrences in Q2 have seen even stronger returns which seems to be holding true today.

As for where today’s gap up will leave IBM, the stock has been trading in a range for the past few months. In early June, there was a breakout of that range which never held.  After returning to the bottom end of said range, IBM has been rallying into earnings closing yesterday at the top of the range and just below its 200-DMA. The gap up on earnings is looking to bring the stock out of that range, above its 200-DMA for the first time since early June, and back up to levels just below its June 8th high.  Click here to view Bespoke’s premium membership options for our best research available.

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