Seeking Alpha
Event-driven, short-term horizon, long/short equity, special situations
Profile| Send Message|
( followers)  

It was in July of last year that we stated "Apple loyalists are not giving up on the company as whisper numbers move away from restrained confidence and move towards strong confidence". You just need to look at the charts and see that was the start of a very significant run. The stock was at 409, and now trades at 552, a 35% gain in just seven months of trading. It's amazing what proper interpretation of the whisper number data can lead to.

Apple (NASDAQ:AAPL) reports fiscal first quarter earnings on Monday, January 27th, after market close. The whisper number is $14.67, fifty-eight cents ahead of the analysts' estimates. The twenty seven whisper numbers we've collected from investors range from a low of $14.00 to a high of $15.20. Apple has a 71% positive surprise history (having topped the whisper in 44 of the 62 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 -2.3% (up from -2.6% last quarter), and over the past eight quarters the average price move in after hours trading following their earnings reports is +0.5% (up from +0.3% 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 two of the 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 five 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 -0.2%, a very limited and negative price move. The average price move within five trading days for the past four quarters following their earnings reports is +2.0%, a limited and positive price move. So Apple gains back some overnight losses 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, +0.1% in five trading days, +0.3% in ten trading days, +0.9% in fifteen trading days, and +0.4% in twenty trading days.

Apple topped the whisper number last quarter by $0.06, and topped again in the comparable quarter last year by $0.12.

(click to enlarge)

October 2011 was the first time Apple reported earnings short of whisper number in five years, and they've fallen short of the whisper number four times since then (July '12, October '12, April '13, and July '13).

(click to enlarge)

When considering all quarters for which we have a whisper number, the best time frame for positive returns falls at the thirty day mark. The 30-day price reaction for the forty-four quarters that Apple has topped the whisper shows an average price move of +3.8%. And for the 17 quarters it has missed the whisper number, an average price move of +8.6% 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 57%
  • Neutral 43%
  • Negative 0%

Compare this to last quarter's expected outlook:

  • Positive 92%
  • Neutral 8%
  • Negative 0%

The whisper numbers have proven more accurate than analysts' estimates as well. Over the past twenty-seven quarters the whisper number has been closer to the actual earnings 81% of the time.

Apple has a 71% positive surprise history (having topped the whisper in 44 of the 62 earnings reports for which we have data).

(click to enlarge)

Summary: Over the past four quarters Apple has topped the whisper number twice. The current whisper number is well above the analysts estimate, showing very strong confidence from investors. The key to playing Apple earnings, however, is the expected price reaction. Historically the after hours move is negative to neutral averaging -2.3% to +0.5% (but this is trending positive). The stock tends to stay flat over the next five to ten trading days. The stock then sees strength through thirty days (averaging about 6%). These averages are trending higher due to the recent price strength. Can Apple top the current whisper number showing very strong expectations? Averages say yes, but more recent earnings reports suggest otherwise. We're not sure if it matters though - Apple loyalists remain steadfast and strong, which is why Apple sees positive price movement (on average) whether or not they beat the whisper number. 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 whisper numbers (earnings expectations) from individual investors and traders. 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.

Source: Whisper Number Impact: Can Apple Top Earnings Expectations?