Posts Tagged ‘earnings’
Buy or Sell: IBM Reports Earnings Monday
Written by Jared Levy, Editor, Options Strategy Weekly
IBM (IBM:NYSE) is one of the few tech companies that have been able to reinvent themselves. With the fast-paced evolution of technology, many of its early peers are long gone.
IBM has a history of strong earnings growth, and the stock has been on a tear over the past year — gaining almost 28%. The question now is whether its earnings will support its lofty stock price.
My earnings thesis uses several points of analysis so that I can fine-tune my estimates. There is no absolute when it comes to how the markets will respond to an earnings report, but with a checklist, logic and a little experience, you can substantially stack the odds in your favor.
Graphing Growth
Comparing data visually is extremely helpful when you need to put things in perspective. The first data I analyze is price-to-earnings and revenue growth. The chart below tells us several things:
- IBM is at a relative price-to-earnings (P/E) multiple high point over the past two years (solid yellow line) — this brings risk of a pullback.
- IBM tends to generate its most revenue in the last quarter of the year, so the big expectations are going to come at the next report; this quarter may not be as heavily weighted.
Chart Courtesy of Bloomberg
View larger chart
The average analyst is looking for IBM to earn $3.22 this quarter, which should knock down the P/E multiple to 13.37 with IBM at $186.80. Out of those analysts, 16 of them rate IBM as a buy and 14 have it as a hold, with zero sell ratings.
The problem I see here is that the target price is about Read more
Use Earnings Season to Play the S&P 500
Written by Jared A Levy, Editor, Options Strategies Weekly
It is a big week, with lots of stocks in play. Alcoa (AA:NYSE), JPMorgan (JPM:NYSE) and Google (GOOG:NASDAQ) are just a few of the companies that will kick off earnings season this week.
To the average investor, earnings may seem like the same march of financial reports that happens each quarter. But for the select few who can get ahead of Wall Street’s expectations and understand exactly what to look for, it is a time to profit.
Think about it like this…
The stock market is the ultimate leading indicator of corporate and economic health. Investors buy and sell stocks based on emotions, economic data, news and chart patterns. These movements are confirmed by the strength (or weakness) of earnings reports. It’s sort of like a race with checkpoints along the way.
Believe it or not, the S&P 500 is in a position now that might surprise you.
Stocks on Sale
There is no doubt that my colleagues and I have cast a fairly bearish tone over the equity markets for the past several months. Fortunately, our thesis has played out profitably. But it is time to consider a change, if only for a short while.
I know you may think I’m crazy, especially given the shakiness of Europe and the overall negative economic data emerging from the U.S. But there is a reason…
I found some interesting and compelling indicators, the first of which you can see in the chart below.
Weekly P/E Chart of the S&P 500 — Courtesy of Bloomberg
View larger chart
This chart tracks the total price, earnings and estimates of all the stocks in the S&P 500 (SPX) over the past 12 years. The white price line is often a motivator for investors, but this time it means very little.
Price is relative. Remember price is just a dollar amount — value is determined in other ways.
Amateurs might look at today’s S&P 500 and think that because the S&P 500 is at April 2009 levels it is a reason to buy. Of course if you were to look back, investors may have said the same thing in October 2008, when the S&P was trading at levels not seen since 2004.
We all know that buying in October 2008 was NOT a good decision. So why are things different now?
I want you to focus your attention on the red and green lines. Try not to get dizzy.
These lines represent the expected price-to-earnings ratio and the trailing or realized P/E ratio respectively. They have been dropping along with prices.
The P/E ratio is the most popular measurement of value for a stock. Generally speaking, it’s good to buy when P/E ratios are relatively low and sell when they are high. It’s not the end all be all, but I have more data that may quiet the P/E naysayers.
Over the past 12 years of data shown on this chart, you can see that the ONLY time the S&P 500 even came close to its current P/E level (green) was in the crisis of 2009 and it was only about two points lower. The expected P/E is also in a favorable buying range.
The average P/E multiple for the S&P 500 over this time frame is about 19; a reading of 12 means value. As long as companies can at least meet their Read more
Smart Investing Daily – How Do You Make Sense of Earnings Reports?
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| Written by Jared Levy, Editor, Smart Investing Daily | |
| Tuesday, 12 April 2011 09:51 | |
 In my book, Your Options Handbook, I detail the ways investors can interpret not just earnings, but other economic and social data. Today, I thought I would share some earnings season insight.From Your Options Handbook:
[Finding] Stock Value After the IPO — Once a stock begins trading publicly on a major exchange, the issuing company is required to meet certain criteria, such as reporting their earnings and audited financials on a regular basis. If a company is listed on an exchange such as the NASDAQ or NYSE, the SEC (Securities and Exchange Commission) and the exchanges themselves require the company to disclose detailed financial information on a quarterly basis (earnings reports) as well as to provide investors with an annual report (10-K report). This not only helps us to value a company, but this data should be used by you (the investor) to decide whether to buy, sell, or hold the stock. This is why I encourage you to invest in stocks that are listed on major exchanges and be wary of foreign companies that may not be subject to our same accounting rules and regulations. Because of the ever-changing demand for a company’s products or services, it is next to impossible to predict with 100% accuracy the amount of goods or services that will be sold to the public over a given period of time. This uncertainty, coupled with the fact that the stock market is also driven by the whims of its investors, makes it next to impossible to predict the future price of a company’s stock (if it were easy, none of us would need day jobs). Earnings, at the end of the day, are usually the strongest and most accurate measurement of the stock market’s ‘”real” health. Just about every professional trader, investor and analyst will look at the track record of a company as well as its expectations for future profitability before they make a decision to buy, sell or hold. Financial analysts and other market participants estimate how much a company will profit and perform each and every quarter. They will publish these estimates to clients and to the public (your broker may offer these reports to you). If a company exceeds those expectations, then often, but not always, the company’s stock will go higher. If the company fails to meet expectations, the stock may move lower or remain stagnant after the report as investors become concerned. Unlocking Secrets of the MarketsEarnings reports are not just report cards for what has happened in the past, but also Read more |
Handling Risk Around General Electric’s (NYSE:GE) Earnings Report
Handling Risk Around General Electric’s (NYSE:GE) Earnings Report
by Jared Levy on October 14th, 2010
General Electric (NYSE:GE) reports earnings tomorrow before the open. GE has been a leader in the recent rally and has been a major influence on the price of the Dow Jones Industrial Average (DJIA) to the upside along with Caterpillar (NYSE:CAT). GE does not tend to be a volatile stock when compared to its Dow Jones peers. Even though GE is not an extremely volatile stock (relatively speaking) earnings reports can spur abnormal volatility.
Fundamental Analysis
GE obviously has its hands in many different pies spanning across several industries. This can make the shares hard to value, as can the sheer enormity and complexity of the company itself.
Looking at the analyst recommendations, the “outperform” consensus offers a slightly bullish bias from that perspective and the average analyst’s target price is about $18 per share. GE has had a tendency to rally in the weeks following most of its last earnings reports, although remember that past performance does NOT guarantee…
Two Ways to Play Apple (AAPL) Earnings
by Jared Levy on July 19, 2010
Apple (NASDAQ:AAPL) stock and the company’s product line are both definitely favorites of mine. If you have followed my writing any amount of time, you’ll know that the smartphone universe and the players within it have been under my microscope for almost two years now. Apple, of course, is more than a smartphone company, but its number-one product is the iPhone, so many analysts tend to put great emphasis on sales of that product. Even with strong iPhone sales, the other products do certainly play a role and we will want to see growth across the entire product line.
The iPhone 4 was released this past quarter and the bulk of the new iPads (3G and variants) sales will be included in this quarter’s earnings as well. Now that we are about three months past the iPad’s April 3 release, data on this device’s sales will also be key.
Based on anecdotal evidence and a statement from Apple, iPhone 4 was a record breaker in new product sales. Obviously there is the antenna issue with this product, but Apple is applying a band-aid in the form of a free case for everyone who bought the phone.
Even though some think Steve Jobs’ tone was almost “condescending” in his conference on Friday to address the issue, the equity market made its own decision and the stock actually held its ground among a sharply declining broader market. But given reports that the iPhone 4 drops twice as many calls as its predecessor, future sales are certainly a concern, as are costs to the company and a permanent solution to the issue.
Coming into its Tuesday earnings report, Apple has some serious expectations behind it. According to several sources, the consensus second-quarter earnings expectation is about $3.10 per share, up from $2.01 a year ago. Most are looking for a revenue increase of about 76.8% to $14.7 billion year over year.
A Couple of Ways to Play Google (GOOG) Earnings
by Jared Levy on July 13, 2010
While Google (NASDAQ:GOOG) is not exactly known for a complete lack of volatility around earnings, its movements have not been all that violent (on a percentage basis). Thursday’s earnings report may be a pivotal one for Google, with the smartphone wars continuing to heat up.
The Blackberry, part of the Research in Motion (NASDAQ:RIMM) family, still leads the sector with a 41% market share in the U.S. and of course the iPhone craze powers on, but Google’s Android operating system is still growing at an exponential rate. I like to think of it as the 1980s Microsoft (NASDAQ:MSFT)/Apple (NASDAQ:AAPL) saga, redux. Back then, MSFT, like Google, offered its “window” operating system to multiple computer makers. In doing so, the company got folks across the world and on different hardware platforms addicted to its products.
Apple, in typical Jobs’ style, only sold its operating system software (and all software, for that matter) for Apple-made PCs. This strategy hurt Apple in the early days. Obviously, things have improved for the company and now the iPhone is like the Rubik’s Cube of the 2000s. Apple has done a good job at getting the public addicted to a cool (albeit flawed) product. Now that Consumer Reports won’t bless the iPhone 4 because of antenna issues, I’m looking forward to seeing how Apple spins it.
Earnings Season Survival Guide
by Jared Levy on July 12, 2010
Buy, sell, hold?
The days of reckoning are upon us! So earnings season officially kicks off today with Alcoa’s (NYSE:AA) report. CSX Corporation (NYSE:CSX) and Novellus Systems (NASDAQ:NVLS) are on today’s schedule as well. As I write this at 6:00 a.m. Monday morning, futures in the S&P, DJX and Nasdaq are lower after a week’s worth of gains.
I wanted to take a couple of quick minutes today to highlight some things to remember and consider during earnings season as you make your decisions to buy, sell or hold. These things are also important to remember if you plan on employing an options strategy. Some high-profile companies that are scheduled to report this week are:
- INTC, YUM and FAST on Tuesday
- MAR on Wednesday
- AMD, JPM and GOOG on Thursday
- BAC, GCI, C and GE on Friday
There are many others reporting; the above issues are simply some of the more heavily followed. If you are wondering when a company of interest reports earnings, check out the OptionsHouse Research tab to locate the next earnings date under the “Events Calendar.” If none is posted, go to the company’s website, as some corporations may announce changes close to its report date or wait to disclose their exact earnings date.
Now that you know the relevant earnings date for your stocks, here are some factors to examine when deciding how to proceed:
- What are EPS expectations?
Take a look at not only the consensus estimates, but the range of EPS estimates and commentary offered by analysts.
- What has the stock done in past earnings reports?
Monsanto’s Earnings and Commentary offer a Look into Agro Industry
by Jared Levy on June 28, 2010
Monsanto (NYSE:MON) is always one of my favorite stocks to watch, and I enjoy listening to their earnings conference call even more. Earnings are expected to be announced on June 30. With 15 analysts covering MON, the consensus per-share estimate is $0.80, and the high and low estimates are $0.85 and $0.75, respectively.
Monsanto is a world leader in specialized seed production and was the creator of the glyphosate based herbicide Roundup. This product used to be a rose but appears to have become a thorn in MON’s side, losing market share to cheaper Chinese versions since its patent protection expired. The good news is that the Supreme Court recently lifted a ban on Monsanto’s Genetically Modified Roundup-Resistant Alfalfa seed. The company also announced a three-year, $1 billion share buyback effective July 1, 2010. MON also declared a quarterly dividend of 26.5 cents per share on its common stock. The dividend is payable on July 30, 2010, to shareowners of record on July 9, 2010.
On June 9, MON said they are “working on a revitalized product strategy to bring more choices to farmer customers, offering them the premium opportunity the company’s products create.” With this, they projected mid-teens earnings growth beyond this fiscal year. I’m curious to hear more details on their strategy.
While all of these developments appear promising, the stock has not had such a positive reaction. Since making these announcements, the stock has slipped another 3% lower, down to its current level of about $47.75. Observed 30-day volatility has been on the rise; after hitting a low of 17.7% in mid-April, vol surged to a recent high of 40% and has dropped off a bit in the past week or so to 38% in the at-the-money front month options. Implied volatility ahead of the report has been on the rise, but has not exceeded the historical level…
Earnings, Economic Data, and the Housing Sector: A Fast Money Post-Mortem
by Jared Levy on June 24, 2010
On Wednesday’s episode of Fast Money on CNBC, there were a ton of topics discussed and I wanted to clarify my thoughts and elaborate here (especially for topics I didn’t get to address in full on the air).
With the third-quarter earnings season ahead of us, let’s take a moment to reflect on the second quarter that is wrapping up. During the last reporting period, 480 stocks in the S&P 500 Index had reported as of Tuesday’s close. Out of these, 389 exceeded analysts’ consensus view, with overall net earnings growth of 54.15% year over year. This leaves the S&P index with a trailing price-to-earnings (P/E) ratio of 16.1 and assumes a forward P/E of 13.3, based on analysts’ expectations of $81 in net index earnings by this quarter next year.
While P/E ratios seem to be in a relatively neutral-to-low state looking forward, there are still issues to contend with, namely housing and unemployment.
According to a Fitch report from earlier this month:
- May Residential Mortgage Backed Securities (RMBS) delinquencies declined for the second straight month, following a steady four-year increase; this is a positive.
- For subprime: 44.8%, down from 45.2%
- For Alt-A (borrowers with less than full documentation and lower credit scores) 33.9% percent, down from 34.1%
- They did note, however, that “approximately nine percent of performing Alt-A loans and 37 percent of performing subprime loans are modified and have a substantial risk of re-default.” This is still a negative sign.
This week, we got the following data: