The Whisper Number's Impact Earnings Trades Hits And Misses

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Includes: AAPL, AMZN, DIS, ITW, MAT, S, SPGI, SYY, UPS
by: John Scherr

Every quarter, our analysis of our whisper number data provides readers at SeekingAlpha and our clients with unique earnings trade opportunities. We provide timely trade alerts to take advantage of expected post earnings price movement. In recent articles on SeekingAlpha, we provided the 'front end' data which, included average expected price movement when a company beat or missed the whisper number. Let's take a look at how that information played out with some of the earnings 'hits' and 'misses' from the past few weeks:

Long & Short Trade Winners

Apple (NASDAQ:AAPL) reported earnings Jan. 24th, after market close. While many investors were more focused on "which whisper number was closest to the actual," our focus was on what happens to Apple's stock price after they report earnings. Our analysis is based on whether or not the actual earnings number falls short of or tops the whisper number. Their actual earnings were well ahead of all estimates and expectations. And during after hours and pre-market trading, the stock moved a strong 8.1% higher. This certainly was not unexpected, and many traders took their profits at market open and ran. Our data, however, indicated more strength from market open through the next thirty trading days. The average price move over the next thirty trading days when Apple earnings top the whisper number is +2.8%. Apple opened trading on January 25th at 454.44, and currently trades 8.6% higher at 493.42. This is well ahead of the average price move for the period (but we haven't heard any complaints). More earnings information can be found here.

Illinois Tool Works (NYSE:ITW) reported earnings of $0.91 on Jan. 31st before market open. This was three cents ahead of the whisper number. The average twenty-five day price move when exceeding the whisper is +7.0%. The stock opened trading on the 31st at 53.15, and currently trades 4.8% higher at 55.71. So far this is on track to reach the average target price by the target timeframe. More earnings information can be found here.

Mattel Corp. (NASDAQ:MAT) reported earnings of $1.07 on Jan. 31st before market open. This was five cents ahead of the whisper number. The average fifteen day price move when exceeding the whisper is +5.1%. The stock opened trading on the 31st at 30.14 and currently trades 6.7% higher at 32.71. This is ahead of the average price move and ahead of the target timeframe. More earnings information can be found here.

Amazon.com (NASDAQ:AMZN) reported earnings of $0.38 on Jan. 31st after market close. This was fifteen cents ahead of the whisper number. The stock closed trading on the 31st at 194.44, and dropped in after hours and pre-market trading 10.6% to open trading on Feb. 1st at 173.81. But since the company topped the whisper number, our data indicated that the average thirty day price move (from market open through thirty trading days) when exceeding the whisper is +7.8%. The stock opened trading on Feb. 1st at 173.81 and currently trades 5.7% higher at 185.54. So far, this is on track to reach the average target price by the target timeframe. More earnings information can be found here.

Sysco Corp. (NYSE:SYY) reported earnings of $1.07 on Feb. 6th before market open. This was one cent ahead of the analysts estimate, but seven cents short of the whisper number. The average fifteen day price move when missing the whisper is -6.2%. The stock opened trading on the 6th at 29.63 and currently trades 1.1% lower at 29.31. So far this is on track to reach the average target price by the target timeframe. More earnings information can be found here.

Sprint Nextel (NYSE:S) reported earnings of -$0.43 on Feb. 8th before market open. This was six cents short of the whisper number. The average twenty-five day price move when missing the whisper is -16.5%. The stock opened trading on the 8th at 2.43 and currently trades 5.8% lower at 2.29. So far this is on track to reach the average target price by the target timeframe. More earnings information can be found here.

Long & Short Trade Losers

United Parcel (NYSE:UPS) reported earnings of $1.28 on Jan. 30th before market open. This was two cents short of the whisper number. The average twenty-five day price move when missing the whisper is -7.3%. The stock opened trading on the 30th at 76.44 and currently trades 0.1% higher at 76.69. Although the company has a 73% reaction accuracy (price moves higher when beats whisper, lower when missed) over the past four years of earnings, this is moving against our expectation of weakness. More earnings information can be found here.

McGraw-Hill (MHP) reported earnings of $0.63 on Jan. 31st before market open. This was eight cents ahead of the whisper number. The average five day price move when exceeding the whisper is +8.3%. The stock opened trading on the 31st at 47.41 and closed five trading days later 3.1% lower at 45.95. Although the company has a 75% reaction accuracy (price moves higher when beats whisper, lower when missed) over the past four years of earnings, this was against our expectation of strength. More earnings information can be found here.

Disney (NYSE:DIS) reported earnings of $0.80 on Feb. 7th after market close. This was twelve cents ahead of the whisper number. The average one day price move when exceeding the whisper is +1.7%. The stock opened trading on the 8th at 41.37 and closed that same day 0.2% lower at 41.27. Although the company has a 100% reaction accuracy (price moves higher when beats whisper, lower when missed) over the past five quarters, this move was against our expectation of strength. More earnings information can be found here.
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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.