Whisper Number Impact: A Disney Earnings Preview

| About: The Walt (DIS)

Walt Disney Company (NYSE:DIS) reports fiscal third quarter earnings on Tuesday, August 9th, after market close. The whisper number is $0.71, one cent short of the analysts estimates. Disney has exceeded the whisper number in 27 of the 40 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 Disney presents an earnings trade opportunity.

Since Disney 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%, a limited but positive price move. 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 only two out of four quarters.

The average price move during next available intra-day trading (market open to market close) for the past four quarters is +0.7%. Another limited but positive price move. The average price move within five trading days for the past four quarters following earnings reports is +0.2%. A very limited but positive price move.

Longer term earnings analysis (last four years of earnings) shows the company tends to see (on average) price movement of +1.2% (intra-day) in one trading day following an earnings report, and price movement of -0.1% in five trading days.

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Disney has topped the whisper number in only two of the past four quarters, but short term the company has lacked a consistent price reaction. In other words, beating the whisper number doesn't always translate to price strength (at least not over the past four quarters). But take a look at the table below:

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When considering all quarters for which we have a whisper number, Disney has seen a consistent price reaction to beating or missing the whisper number. For the 27 quarters that Disney has topped the whisper, the greatest average price move of +1.0% happens in 20 trading days. And for the 13 quarters it has missed the whisper number, the greatest average price move of -2.8% happens in 30 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: 40.0%
  • Neutral: 20.0%
  • Negative: 40.0%

Disney has a 68% positive surprise history (having topped the whisper in 27 of the 40 earnings reports for which we have data):

  • Beat whisper: 27 qtrs
  • Met whisper: 0 qtrs
  • Missed whisper: 13 qtrs

Summary: Over the past four quarters Disney earnings have fallen short of the whisper number in two out of four reports. The average price movement (after hours) is very limited but positive. The average price movement (post earnings intra-day, long or short term analysis) is also very limited but positive. There is no short term consistent reaction to the whisper number, but there is a longer term consistent reaction. Investors are showing limited confidence for next quarter's outlook. Data indicate the strongest price movement (when beating the whisper number) within 20 trading days following the earnings report, and when falling short of the whisper number within 30 trading days. The data certainly provide some positives here (both long and short), but all come with a certain risk. For most, the limited but positive price reactions aren't worth the trading risk (or effort). Data indicates Disney does not present a viable short term trading opportunity.

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.