The Whisper Number Impact: Earnings Preview For Analog Devices, Hewlett Packard, Fluor

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 |  Includes: ADI, CHS, DLTR, FLR, HPQ, TJX, TOL
by: John Scherr

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.

Analog Devices (NYSE:ADI) reports earnings Feb. 22nd, after market close. The whisper number is $0.49, one cent ahead of the analysts estimate. ADI has a 71% positive surprise history (having topped the whisper in 25 of the 35 earnings reports for which we have data). The average price movement (starting at next market open) within 10 trading days of these 35 earnings reports is -0.1%. Although very limited positive price movement is seen through 20 trading days, the strongest price movement of -1.4% comes within 30 trading days when the company reports earnings that beat the whisper number, and -4.4% within 30 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 2.4% loss in five trading days, before seeing strength of 5.9% through 30 days. More earnings information can be found here.

Hewlett Packard (NYSE:HPQ) reports earnings Feb. 22nd, after market close. The whisper number is $0.86, one cent behind the analysts estimate. HP has a 61% positive surprise history (having topped the whisper in 28 of the 46 earnings reports for which we have data). The average price movement (starting at next market open) within 10 trading days of these 46 earnings reports is -0.1%. The strongest price movement of -2.4% comes within 20 trading days when the company reports earnings that beat the whisper number, and +1.6% within 30 trading days when the company reports earnings that miss the whisper number (opposite reactor). Last quarter the company reported earnings 7 cents ahead of the whisper number. Following that report the stock realized a 7.3% gain in 10 trading days. More earnings information can be found here.

Fluor (NYSE:FLR) reports earnings Feb. 22nd, after market close. The whisper number is $0.81, one cent behind the analysts estimate. Fluor has a 68% positive surprise history (having topped the whisper in 15 of the 22 earnings reports for which we have data). The average price movement (starting at next market open) within 10 trading days of these 22 earnings reports is -0.1%. The strongest price movement of +4.6% comes within 30 trading days when the company reports earnings that beat the whisper number, and -3.1% within five trading days when the company reports earnings that miss the whisper number. Last quarter the company reported earnings 5 cents short of the whisper number. Following that report the stock realized a 13% loss in 30 trading days. More earnings information can be found here.

Reported this morning, before market open:

  • Toll Brothers (NYSE:TOL); reported earnings of -$0.02, seven cents short of the whisper number
  • TJX Companies (NYSE:TJX); reported earnings of $0.62, two cents ahead of the whisper number
  • Chico's FAS (NYSE:CHS); reported earnings of $0.15, six cents ahead of the whisper number
  • Dollar Tree (NASDAQ:DLTR); reported earnings of $1.60, one cent short of the whisper number

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 time frame (see link in profile to receive alerts). Since 1998, WhisperNumber.com has been tracking and publishing "crowd sourced estimates" for earnings. 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.