International Business Machines Corp. (IBM - Analyst Report) is set to report fourth-quarter 2015 results on Jan 19, after the market closes. Last quarter, it posted a positive earnings surprise of 0.30%. Over the past four quarters, the company has posted an average positive earnings surprise of 2.80%. Let’s see how things are shaping up for this announcement.

Factors at Play

IBM had a tough 2015 given the ongoing and heavily time consuming business model transition to cloud. Further sluggish IT spending particularly on on-premise and data center hardware along with foreign exchange volatility remain added concerns.

We believe that revenues will continue to be affected in the near term as the company is currently transitioning to higher-growth markets that are not yielding enough to offset declines in traditional segments. Also, intensifying competition in the industry is a major headwind.

Nevertheless, IBM's strategic growth initiatives, including its Big Data & business analytics, cloud computing, mobile and social business are expected to drive growth. Reportedly, IBM estimates SoftLayer to generate $1 billion in revenues in 2016. SoftLayer is the primary infrastructure of IBM’s cloud operations.

Also, the company is expected to benefit from its ongoing innovation and its array of interesting patents. IBM has secured the top position in the 2015 U.S patent list for the 23rd consecutive year. Per a report from IFI CLAIMS Patent Services, IBM received 7,355 patents in the year.

In addition, IBM’s policy of making strategic acquisitions (over 150 companies since 2000) will lead to incremental revenues, strengthening its technology leadership and resulting in a more favorable mix of business. The acquisitions have also increased its scale of operations globally. Some of IBM’s recent acquisitions include Merge Healthcare, StrongLoop, Meteorix LLC and Cleversafe Inc. Strong cash flow generating ability and healthy shareholders’ return plans are other positives.

Earnings Whispers

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

Zacks ESP: IBM has an Earnings ESP of -1.47%. This is because the Most Accurate estimate stands at $4.69, while the Zacks Consensus Estimate is pegged higher at $4.76.

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

Stocks to Consider

Here are some stocks worth considering that, as per our model, have the right combination of elements to post an earnings beat this quarter:

MicroStrategy Inc. (MSTR - Snapshot Report) with Earnings ESP of +3.46% and a Zacks Rank #1 (Strong Buy)

QUALCOMM Incorporated (QCOM - Analyst Report) with Earnings ESP of +1.28% and a Zacks Rank #2 (Buy).

NetSuite Inc. (N - Snapshot Report) with Earnings ESP of +8.57% and a Zacks Rank #3 (Hold)