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Apple (NASDAQ:AAPL) reports fiscal fourth-quarter earnings on Thursday, Oct. 25, after market close. The whisper number is $8.98, 14 cents ahead of the analysts estimates. Apple has exceeded the whisper number in 42 of the 57 earnings reports for which we have data.

Trading on an earnings event requires an understanding of post-earnings price movement, both after hours and intraday. We'll take a look at the average post-earnings price movement, when those moves occur, and if Apple presents an earnings trade opportunity.

Since Apple reports earnings after the 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 +3.2% (down from +5.6% last quarter). Over the past eight quarters, the average price move in after-hours trading following its earnings reports is +2.4% (down from +3.6% last quarter). 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 two out of four trades. If you took a long position prior to the past eight earnings reports, you were on the right side of the trade in five out of eight trades.

The average price move during the next available intraday trading (market open to market close) for the past four quarters is -0.8%, a limited and negative price move. The average price move within five trading days for the past four quarters following its earnings reports is -0.8%, a limited and negative price move. So Apple gives back some overnight gains in the five trading days following earnings.

Longer-term earnings analysis (last four years of earnings) shows that the company tends to see (on average) price movement of -0.7% (intraday) in one trading day following its earnings report, -0.1% in five trading days, -0.2% in 10 trading days, +0.9% in 15 trading days, and +0.7% in 20 trading days. Apple topped the whisper number in January 2012 by $3.65 and again in April 2012 by $1.81. It fell short of the whisper number in October 2011 by $0.54, and missed again last quarter by $1.70.

Click to enlarge image.

October 2011 was the first time Apple reported earnings short of the whisper number in five years. Within 20 trading days (from the open) of that report, the stock dropped 4.2%. Add that to the after-hours drop of 4.9%, and the stock was down a total of 9%.

Apple missed again last quarter (July 2012), but the price reaction was much different. Within 20 trading days (from the open) of that report, the stock gained 16.3%. Take away the after-hours drop of 4.3%, and the stock still realized a positive move of 12%.

When considering all quarters for which we have a whisper number, the best time frame for positive returns falls at the 30-day mark. The 30-day price reaction for the 42 quarters that Apple has topped the whisper number shows an average price move of +3.9%. And for the 14 quarters it has missed the whisper number, an average price move of +8.8% 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 positive outlook:

  • Positive 66.7%
  • Neutral 0.0%
  • Negative 33.3%

Compare this to last quarter's expected outlook:

  • Positive 75.00%
  • Neutral 8.3%
  • Negative 16.7%

Apple has a 74% positive surprise history (having topped the whisper number in 42 of the 57 earnings reports for which we have data).

  • Beat whisper: 42 quarters
  • Met whisper: 1 quarters
  • Missed whisper: 14 quarters

The whisper numbers have proven more accurate than analyst estimates as well. Over the past 24 quarters, the whisper number has been closer to the actual earnings in 21 of 24 quarters. The current "high" expectation is $9.60, while the current low expectation is $8.74.

Summary

Over the past four quarters, Apple has topped the whisper number twice. The current whisper number is above the analysts estimate, showing some confidence from investors. But the number is restrained when compared to prior whispers. The key to playing Apple earnings, however, is the expected price reaction. Historically the after hours move is positive, averaging +2.4% to +5.6%. The stock tends to give up ground over the next 10 to 15 trading days, but the move is very limited (around 1.5%). The stock then sees strength through 30 days (averaging about 4%).

More post-earnings price movement and historical data can be found here.

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Since 1998, WhisperNumber.com has been tracking and publishing "crowd sourced estimates" for earnings. We call these earnings expectations whisper numbers. The "crowd" that provides us with whisper numbers are primarily individual investors and traders just like you that have registered with our site.

We are an independent financial research firm. We have no affiliations with investment banks, investment management, or corporate organizations that could compromise our data or analysis. (So no relationships with the bad guys or so-called professional analysts.)

As for our data collection, methodology, and price reaction accuracy: For the past 15 years we have remained consistent with data collection and methodology, and our data has proven itself over that time. We also have two independent academic studies supporting the premise that investor expectations for quarterly earnings (our whisper numbers) provide greater returns when used as an investment vehicle, and have a greater impact on stock movement than analysts consensus estimates.

A company's "price 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, "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. All the numbers are gamed at this point." This is why the proprietary whisper number we provide is a more useful and viable alternative to analysts estimates.

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

Source: Whisper Number Impact: Apple Expectations Showing Restrained Confidence