Unformatted text preview: We can't go without covering one of the more volatile companies and probably the most anticipated: Apple (AAPL). Unfortunately, Apple has been one of the best examples of "sell on the news" and a lot of money has been made riding the stock price up in anticipation of strong earnings and then shorting just before the company releases. This strategy is also helped by the fact the company is one of the more extreme examples of under promising/over delivering as the company is notorious for providing conservative guidance. The market has caught on to this, though. Typically, future expectations outweigh past results in the stock market, but Apple provided guidance below estimates each quarter in 2006 but also beat the Earnings Whisper ® number each quarter and the stock has rallied on the news. Still, things are shaping up a lot like last this time last year. In January 2006, the consensus earnings estimate was $0.57 per share and the Earnings Whisper ® number was $0.65 per share. On January 10, 2006, at its MacWorld, the company introduced its Intel driven iMac and pre-announced fourth quarter revenue above estimates. The stock jumped 6.1% on the news and continued climbing over the next few days, peaking at a 12% gain a little before its earnings release on January 18, 2006. This announcement was followed by numerous target price increased and positive comments from analysts. Then, on January 18, the company reported inline with the whisper, but provided second quarter guidance for earnings of $0.42 per share on revenue of $4.3 billion - below the estimates for earnings of $0.46 per share on revenue of $4.6 billion. The company ultimately reported earnings of $0.47 per share on revenue of $4.4 billion, but by the time the company reported second quarter results, the stock was down 24%. This quarter, we did not get the raised revenue guidance, but Apple CEO Steve Jobs did something better. On January 9, 2007, at its MacWorld, Apple announced its iPhone (along with a couple of other products) and the stock immediately jumped up. The stock is now up almost 11% from its pre-iPhone announcement. So, though we clearly expect Apple to report good numbers, we believe the odds are against the stock continuing higher. We had previously scheduled the stock to be a Whisper Play on Friday, but removed it accordingly. The company is scheduled to release earnings after the market closes on Wednesday, January 17, 2007. The consensus earnings estimate is for earnings of $0.78 per share and the Earnings Whisper ® number is $0.85 per share. We would not be surprise to see Apple beat our number, but also suspect the company will provide "conservative" guidance that could be inline or below current estimates. ...
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- Spring '98