The Whisper Number Impact: Tuesday Earnings Preview

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Includes: CTAS, JBL, NKE, ORCL
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.

Expected earnings reports and the whisper number impact for December 20th, 2011, after market close.

Nike (NYSE:NKE) reports earnings Dec. 20th, after market close. The whisper number is $1.00, three cents ahead of the analyst estimate. Nike has a 79% positive surprise history (having topped the whisper in 30 of the 38 earnings reports for which we have data). The average price movement (starting at next market open) within 10 trading days of these 38 earnings reports is -1.1%. The strongest price movement of +1.0% comes within one trading day when the company tops the whisper number. Last quarter the company reported earnings 13 cents ahead of the whisper number. Following that report the stock realized a 7.5% gain in 30 trading days.

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Cintas Corp. (NASDAQ:CTAS) reports earnings Dec. 20th, after market close. The whisper number is $0.49, 1 cent ahead of the analysts estimate. Cintas has a 52% positive surprise history (having topped the whisper in 12 of the 23 earnings reports for which we have data). The average price movement (starting at next market open) within 10 trading days of these 23 earnings reports is -0.1%. The strongest price movement of +1.3% comes within 20 trading days when the company tops the whisper number. Last quarter the company reported earnings 6 cents ahead of the whisper number. Following that report the stock realized a 3.3% loss in one trading day.

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Jabil Circuit (NYSE:JBL) reports earnings Dec. 20th, after market close. The whisper number is $0.63, 2 cents short of the analysts estimate. Jabil has a 56% positive surprise history (having topped the whisper in 23 of the 41 earnings reports for which we have data). The average price movement (starting at next market open) within 10 trading days of these 41 earnings reports is +1.1%. The strongest price movement of +11.1% comes within 30 trading days when the company tops the whisper number. Last quarter the company reported earnings 4 cents ahead of the whisper number. Following that report the stock realized a 5.0% gain in 10 trading days.

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Oracle Corp. (NYSE:ORCL) reports earnings Dec. 20th, after market close. The whisper number is $0.56, 1 cent behind the analysts estimate. Oracle has a 62% positive surprise history (having topped the whisper in 31 of the 50 earnings reports for which we have data). The average price movement (starting at next market open) within 10 trading days of these 50 earnings reports is +0.6%. The strongest price movement of +1.7% comes within 10 trading days when the company tops the whisper number. Last quarter the company reported earnings 1 cent ahead of the whisper number. Following that report the stock realized an 8.2% gain in 30 trading days.

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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.