Trade?/Not to Trade? Apple Earnings Preview

oldpigwang

Seeking Alpha
Apple (AAPL) reports fiscal third quarter earnings on Tuesday, July 19th, after market close. The whisper number is $5.83, 13 cents ahead of the analysts estimates. Apple has exceeded the whisper number in 39 of the 52 earnings reports we have data.

Trading on an earnings event requires an understanding of post earnings price movement, both after hours and intra-day. 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 +1.6%, a limited and positive price move. 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 three out of four trades.

The average price move during the next available intra-day trading (market open to market close) for the past four quarters is -1.5%. A very limited and negative price move. The average price move within five trading days for the past four quarters following the company's earnings
reports is +0.5%. A very limited and positive price move.

Longer term earnings analysis (last four years of earnings) shows the company tends to see (on average) price movement of +0.4% (intra-day) in one trading day following its earnings report, and price movement of +0.1% in five trading days
Apple has topped the whisper number in the past four quarters, but short term it has lacked a consistent price reaction. In other words, beating the whisper number doesn't always translate to price strength. Although it has topped the whisper number in the past 20 quarters, the short term (intra-day) price reaction has been positive in only 50% of the reports. In the comparable quarter last year, Apple topped the whisper number by 34 cents. While the stock gained 5.2% in after hours trading, it proceeded to drop 4.1% in one trading day, and only gained about 3% over the full quarter.