As Apple's (NASDAQ:AAPL) stock price continued to slide last quarter, earnings expectations showed confidence from investors that indicated the weakness was temporary. We stated in last quarter's earnings article that 'Apple loyalists are not giving up on the company as whisper numbers move away from restrained confidence and move towards strong confidence'. Even when the company reported earnings that topped expectations the stock continued seeing price weakness that started back in October 2012. We're seeing a similar situation this quarter - a strong whisper number expectation perhaps driven by Apple brand loyalty.
Apple reports fiscal second quarter earnings on Tuesday, April 23rd, after market close. The whisper number is $10.56, forty-three cents ahead of the analysts estimates. Whisper numbers range from a low of $9.99 to a high of $11.12. Apple has a 73% positive surprise history (having topped the whisper in 43 of the 59 earnings reports for which we have data).
Trading on an earnings event requires an understanding of post earnings price movement, both after hours and intra-day. We'll take a look at the average post earnings price movement, when those moves occur, and if Apple presents an earnings trade opportunity.
Since Apple reports earnings after market close, it's important to look at after hours trading activity. Over the past four quarters the average price move in after hours trading following their earnings reports is -1.2% (down from +2.4% last quarter), and over the past eight quarters the average price move in after hours trading following their earnings reports is +1.4% (up from +3.0% last quarter). In other words if you took a long position prior to the past four earnings reports you were on the right side of the trade in one out of four trades, and if you took a long position prior to the past eight earnings reports you were on the right side of the trade in four out of eight trades.
The average price move during next available intra-day trading (market open to market close) for the past four quarters is -1.0%, a limited and negative price move. The average price move within five trading days for the past four quarters following their earnings reports is -0.5%, a limited and negative price move. So Apple gives back some overnight gains in the five trading days following earnings.
Longer term earnings analysis (last four years of earnings) shows the company tends to see (on average) price movement of -0.8% (intra-day) in one trading day following their earnings report, -0.7% in five trading days, -1.2% in ten trading days, +0.1% in fifteen trading days, and -0.6% in twenty trading days.
Apple topped the whisper number in January 2012 by $3.65, topped again in April 2012 by $1.81, and beat the whisper number last quarter by thirteen cents. They fell short of the whisper number in July 2012 by $1.70, and missed in October 2012 by $0.31.
October 2011 was the first time Apple reported earnings short of whisper number in five years. Within twenty trading days (from open) of that report the stock dropped 4.2%. Add that to the after hours drop of 4.9%, and the stock was down a total of 9%.
Apple missed again in July 2012, but the price reaction was much different. Within twenty trading days (from open) of that report the stock gained 16.3%. Take away the after hours drop of 4.3%, and the stock still realized a positive move of 12%.
When Apple missed the whisper number in October 2012, the stock remained flat in after hours trading. By year end the stock was down 12.7%.
Last quarter the company topped a very confident whisper number by thirteen cents. After hours saw a 10.5% price drop, and the stock is down 12% to date.
When considering all quarters for which we have a whisper number, the best timeframe for positive returns falls at the thirty day mark. The 30-day price reaction for the forty-three quarters that Apple has topped the whisper shows an average price move of +3.8%. And for the 15 quarters it has missed the whisper number, an average price move of +8.0% in thirty trading days following earnings.
Other factors that may influence post earnings price movement;
The majority of investors polled are expecting the company to provide a neutral to positive outlook:
- Positive 50.0%
- Neutral 33.3%
- Negative 16.7%
Compare this to last quarter's expected outlook:
- Positive 60.0%
- Neutral 40.0%
- Negative 0.0%
As indicated earlier, Apple has a 73% positive surprise history:
- Beat whisper: 43 qtrs
- Met whisper: 1 qtrs
- Missed whisper: 15 qtrs
The whisper numbers have proven more accurate than analysts estimates as well. Over the past twenty-five quarters the whisper number has been closer to the actual earnings in 22 of 25 quarters.
Summary: Over the past four quarters Apple has topped the whisper number twice. The current whisper number is above the analysts estimate, showing confidence from investors. The key to playing Apple earnings, however, is the expected price reaction. Historically the after hours move is positive (but limited) averaging +2.4% to +3.0%. The stock tends to give up ground over the next ten to fifteen trading days, but the move is very limited. The stock then sees strength through thirty days (averaging about 4%). These averages are trending lower due to the recent price weakness. More post earnings price movement and historical data can be found here.
What are your earnings expectations? Let us know in the comments section below or visit whispernumber.com.
Since 1998, WhisperNumber.com has been tracking and publishing "crowd sourced estimates" for earnings. We call these earnings expectations whisper numbers. Our whisper numbers are gained from individual investors and traders just like you that have registered with our site. While the whisper number itself is an important part of our analysis, a company's "price reaction" to beating or missing the whisper number expectation is the key. On average, companies that exceed the whisper are "rewarded," while companies that miss are "punished" following an earnings report.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.