To Trade or Not to Trade: An Apogee Enterprises Earnings Preview

Apr. 6.11 | About: Apogee Enterprises, (APOG)

Apogee Enterprises (NASDAQ:APOG) reports fiscal third quarter earnings on Wednesday, April 6th, after market close. The whisper number is -$0.13, two cents short of the analysts estimates. Apogee has exceeded the whisper number in 11 of the 20 earnings reports 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 Apogee presents an earnings trade opportunity.

Since Apogee 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 -7.5%, a very strong and negative price move. In other words if you took a long position prior to the past four earnings reports you were on the wrong side of the trade in four out of four earnings trades.

The average price move during next available intra-day trading (market open to market close) for the past four quarters is +2.9%. A relatively limited and positive price move. The average price move within five trading days for the past four quarters following their earnings reports is +1.3%. Another relatively limited and positive price move.

Longer term earnings analysis (last four years of earnings) shows the company tends to see (on average) price movement of +2.8% (intra-day) in one trading day following their earnings report, and price movement of +1.2% in five trading days.

Apogee has missed the whisper number in the past four quarters, but short term they've lacked a consistent price reaction. On average they tend to see a positive price reaction when they miss the whisper number (known as an 'opposite reactor') during next day (intra day) trading.

However, further analysis shows a consistent price reaction over the past four years of earnings reports over a slightly longer period of time. On average, Apogee has seen strength when beating the whisper number and weakness when missing the whisper over a fifteen day period following earnings. The the stock has seen (on average) a +12.6% price move when topping the whisper, and a -8.7% price move when missing the whisper in fifteen days following their earnings report.

Other factors that may influence post earnings price movement;

The majority of investors polled are expecting the company to provide a negative outlook:

- Positive 0.0%
- Neutral 0.0%
- Negative 100.0%

Apogee earnings have historically given investors a positive surprise as they have exceeded investor expectations (by slim margin) more times than missed:

- Beat whisper: 11 qtrs
- Met whisper: 0 qtrs
- Missed whisper: 9 qtrs

Summary: The whisper number is showing no confidence this quarter as it is two cents short of the analysts estimates. The average price movement (after hours) is strong and negative (a period that also shows a consistent reaction to the whisper number.) The average price movement (post earnings intra-day, long or short term analysis) is relatively limited but positive. But short term the stock is considered an opposite reactor when missing the whisper number (seeing strength instead of expected weakness). There is also no confidence from investors for Apogee's next quarter's outlook.

Data indicates that a short position trade would need to be entered prior to the earnings report, and exited at next days open. But this move would be considered high risk/high reward. A long position could be taken at next days open, but this move would be considered high risk/limited reward. The best data is found over a fifteen day trading period when the company shows an average positive price move when topping the whisper number (of +12.6%), and an average negative price move when missing the whisper number (of -8.7).

Data indicates Apogee presents a viable short term trading opportunity (long or short depending on whether or not they beat or miss the whisper number), with the strongest price reaction expected within fifteen trading days following their report.
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When analyzing the data we collect, the most important aspects are how a company reacts to beating or missing the whisper number, the average post earnings price movement, and in what timeframe (see link in profile to receive alerts). Keep in mind that trading on whispers is a technical play on market psychology, rather than a bet on a company's fundamental strengths.

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 analysts estimate see a 2.5 times greater positive post earnings price move than companies that only exceed the analysts estimate but miss the whisper.

The whisper number is derived from an average of individual investors, floor traders, investment advisors, and market strategists 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.