The Whisper Number Impact: Earnings Preview For BAC, UNP, LUV, MS

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 |  Includes: BAC, LUV, MS, UNP
by: John Scherr

Expected earnings reports and the whisper number impact for January 19th, 2012, before market open.

Knowing how likely a stock's price will move following an earnings report will help you make better trades. Many investors believe that beating or missing the whisper number has the greatest impact on stock movement. If the number is exceeded, the stock is rewarded, and prices move higher. If the number is missed, the stock is punished, and prices move lower. Unlike the analysts estimate, the 'whisper number' from WhisperNumber.com has actually been proven to have a greater impact on stock movement.

Bank of America (NYSE:BAC) reports earnings January19th, before market open. The whisper number is $0.19, three cents behind the analysts estimate. BAC has a 53% positive surprise history (having topped the whisper in 23 of the 43 earnings reports for which we have data). The average price movement (starting at next market open) within ten trading days of these forty-three earnings reports is -0.4%. The strongest price movement of +0.6% comes within thirty trading days when the company reports earnings that beat the whisper number, and -3.2% within thirty trading days when the company reports earnings that miss the whisper number. Last quarter the company reported earnings thirty-five cents ahead of the whisper number. Following that report, the stock realized a 7.2% gain in five trading days.

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Union Pacific (NYSE:UNP) reports earnings Jan. 19th, before market open. The whisper number is $1.91, ten cents ahead of the analysts' estimate. UNP has a 84% positive surprise history (having topped the whisper in 21 of the 25 earnings reports for which we have data). The average price movement (starting at next market open) within ten trading days of these twenty-five earnings reports is +1.3%. The strongest price movement of +2.1% comes within ten trading days when the company reports earnings that beat the whisper number, and +8.3% within ten trading days when the company reports earnings that miss the whisper number. Last quarter, the company reported earnings two cents ahead of the whisper number. Following that report, the stock realized a 12.3% gain in thirty trading days.

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Southwest Airlines (NYSE:LUV) reports earnings Jan. 19th, before market open. The whisper number is $0.08, in-line with the analysts estimate. LUV has a 65% positive surprise history (having topped the whisper in 22 of the 34 earnings reports for which we have data). The average price movement (starting at next market open) within ten trading days of these thirty-four earnings reports is -0.6%. The strongest price movement of -2.0% comes within thirty trading days when the company reports earnings that beat the whisper number, and -4.1% within thirty trading days when the company reports earnings that miss the whisper number. Last quarter, the company reported earnings one cent ahead of the whisper number. Following that report the stock realized a 4.5% gain in one trading day.

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Morgan Stanley (NYSE:MS) reports earnings Jan. 19th, before market open. The whisper number is -$0.50, seven cents ahead of the analysts estimate. MS has a 75% positive surprise history (having topped the whisper in 6 of the 8 earnings reports for which we have data). The average price movement (starting at next market open) within ten trading days of these eight earnings reports is -1.1%. The strongest price movement of -10.1% comes within thirty trading days when the company reports earnings that beat the whisper number, and +4.3% within twenty trading days, when the company reports earnings that miss the whisper number. Last quarter, the company reported earnings one cent ahead of the whisper number. Following that report, the stock realized a 4.5% gain in one trading day.

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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.

According to the Wall Street Journal, "the percentage of companies that have beaten expectations often is cited as a barometer of corporate profitability, an indicator of how well the economy as a whole is doing or a predictor of where the stock market is going. What goes unsaid, however, is that these positive surprises are becoming so common they are nearly universal. They are predetermined in a cynical tango-clinch between companies and the analysts who cover them. And there is no reliable evidence that the stock market as a whole will earn higher returns after periods with more positive surprises."

"In short, there isn't anything surprising about earnings surprises. They aren't the exception; they are the rule. "All the numbers are gamed at this point," says James A. Bianco, president of Bianco Research."

Whisper numbers provide the unbiased earnings expectation proven more significant than the analysts estimates.

All trading involves risk and the information presented is not intended to be a recommendation of any kind.

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