Whisper Number Impact: Earnings Preview For MA, CAH, CME, DOW, K

|
 |  Includes: BZH, CAH, CI, CME, DOW, K, MA
by: John Scherr

Expected earnings reports and the whisper number impact for February 2nd, 2012, before market open.

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.

Mastercard (NYSE:MA): The whisper number is $3.97, five cents ahead of the analysts estimate. Mastercard has a 95% positive surprise history (having topped the whisper in 21 of the 22 earnings reports for which we have data). The average price movement (starting at next market open) within ten trading days of these twenty-two earnings reports is +1.6%. The strongest price movement of +4.2% comes within thirty trading days when the company reports earnings that beat the whisper number, and -5.4% within one trading day when the company reports earnings that miss the whisper number. Last quarter the company reported earnings 0.78 cents ahead of the whisper number. Following that report the stock realized a 3.7% gain in twenty trading days.

Click to enlarge

Cardinal Health (NYSE:CAH): The whisper number is $0.78, two cents ahead of the analysts estimate. Cardinal Health has a 63% positive surprise history (having topped the whisper in 19 of the 30 earnings reports for which we have data). The average price movement (starting at next market open) within ten trading days of these thirty earnings reports is +1.2%. The strongest price movement of +3.4% comes within ten trading days when the company reports earnings that beat the whisper number, and +1.5% within thirty trading days when the company reports earnings that miss the whisper number. Last quarter the company reported earnings in-line with the whisper number. Following that report the stock realized a 5.7% gain in one trading day, only to give most of it back with a 5.3% loss in twenty trading days.

Click to enlarge

CME Group (NASDAQ:CME): The whisper number is $3.56, fifteen cents short of the analysts estimate. CME has a 47% positive surprise history (having topped the whisper in 8 of the 17 earnings reports for which we have data). The average price movement (starting at next market open) within ten trading days of these seventeen earnings reports is +0.3%. The strongest price movement of -3.9% comes within twenty trading days when the company reports earnings that beat the whisper number, and +7.0% within thirty trading days when the company reports earnings that miss the whisper number (opposite reactor). Last quarter the company reported earnings six cents short of the whisper number. Following that report the stock realized a 7.9% loss in twenty trading days.

Click to enlarge

Dow Chemical (NYSE:DOW): The whisper number is $0.31, one cent ahead of the analysts estimate. DOW has a 61% positive surprise history (having topped the whisper in 20 of the 33 earnings reports for which we have data). The average price movement (starting at next market open) within ten trading days of these thirty-three earnings reports is -0.4%. The strongest price movement of -0.8% comes within ten trading days when the company reports earnings that beat the whisper number, and -8.3% within twenty trading days when the company reports earnings that miss the whisper number. Last quarter the company reported earnings four cents short of the whisper number. Following that report the stock realized a 14.1% loss in twenty trading days.

Click to enlarge

Kellogg (NYSE:K): The whisper number is $0.65, two cents ahead of the analysts estimate. Kellogg has a 53% positive surprise history (having topped the whisper in 10 of the 19 earnings reports for which we have data). The average price movement (starting at next market open) within ten trading days of these nineteen earnings reports is +0.4%. The strongest price movement of +0.7% comes within thirty trading days when the company reports earnings that beat the whisper number, and +0.9% within ten trading days when the company reports earnings that miss the whisper number. Last quarter the company reported earnings seven cents short of the whisper number. Following that report the stock realized a 1.9% loss in thirty trading days.

Click to enlarge

Also reporting before market open Feb. 2nd:
- Beazer Homes (NYSE:BZH): whisper number of -0.37, one cent short of analysts
- Cigna (NYSE:CI): whisper number of 1.20, one cent ahead of analysts

************************************

When analyzing the data collected by WhisperNumber.com, 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.