Microsoft (NASDAQ:MSFT) reports fiscal second quarter earnings on Thursday, January 27th, after market close. The whisper number is $0.68, in-line with analyst estimates. Microsoft has exceeded the whisper number in 27 of the 49 earnings reports we have data.
Although Microsoft has topped the whisper number in three of the last four quarters, the average short term price movement is negative. We'll take a look at when those moves occur (after market or intra-day) and if Microsoft presents an earnings trade opportunity.
Since Microsoft 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 its earnings reports is +1.2% - not a significant move.
The post earnings price movement certainly doesn't improve during regular hours trading. The average price move during next available intra-day trading (next day market open to market close) is -1.9%.
Longer term earnings analysis (last four years of earnings) shows the company tends to see (on average) positive price movement of -1.2% (intra-day) in one trading day following its earnings report, and -0.5% in five trading days.
While Microsoft does not meet the criteria of a "consistent" reactor to beating or missing the whisper number per WhisperNumber.com, it does present a "contrarian" earnings scenario. Over the past four years, it has reacted in an opposite manner (strength when missing the whisper number, weakness when beating the whisper). Microsoft has a 70% to 80% "contrarian accuracy" rating as they have seen an opposite price reaction in 12 of the last 15 quarters, up through 20 trading days following earnings. This simply means that the stock should consistently see strength when they miss the whisper, or see weakness when they beat (opposite of our normal data interpretation).
Other factors that may influence post earnings price movement:
The majority of investors polled are expecting the company to provide a positive outlook:
- Positive - 46.1%
- Neutral - 30.8%
- Negative - 23.1%
Microsoft earnings have historically given investors a positive surprise (by narrow margin) as they have exceeded investor expectations more times than missed:
- Beat whisper: 27 qtrs
- Met whisper: 1 qtrs
- Missed whisper: 21 qtrs
Summary: The whisper number is not showing any confidence this quarter as it is in-line with analyst estimates. But that comes as no surprise as Microsoft is well known to report earnings within a penny or two of expectations. But the average price movement (either after hours or intra-day, long term or short term analysis) is not very impressive. Most traders aren't happy with just a 1% price move. But there are some positives - Microsoft has a high "opposite" reaction accuracy, and the price reaction is much stronger over a 20 trading day post earnings period. We don't think the negatives outweigh the "opposite" positives and data indicates Microsoft does present a viable "opposite" short term trading opportunity (beat the whisper see weakness, miss the whisper see strength).
A company's "reaction" to 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.
Companies that exceed both the whisper number (from WhisperNumber.com) and the analyst estimates see a 2.5 times greater positive post earnings price move than companies that only exceed the analyst estimates but miss the whisper.
The whisper number is derived from an average of individual investors, floor traders, investment advisors and market strategists and their expectations regarding earnings for the most recent quarter.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.