Another Successful Trading Recommendation

Quick Update on Family Dollar:

Yesterday, Family Dollar Stores ("FDO") reported earnings that disappointed the Street. For my readers and followers, this was not a surprise. Early Tuesday, July 6th, I wrote the following:

FDO shares have risen nearly 40% since the start of the year. If estimates do come in below analysts’ consensus as I anticipate, shares should fall quite precipitously.

I also gave a Trading Recommendation on the stock--Buy Puts. The day after the earnings announcement (Wednesday), shares closed with an 8.22% drop. On Tuesday just before the close, I actually followed my own advice and bought August puts, which I sold the next day for an 80%+ gain.

So far this earnings season I have given my readers correct Trading Recommendations on both Research in Motion ("RIMM") and FDO. RIMM fell 10.84% the day after its announcement and FDO dropped 8.22%. Monday, July 12th, marks the official beginning of the season. Estimates and recommendations have already been posted for companies like AT&T, UPS, CSX, Seagate Technology, United Healthgroup, IBM, Intel, Google, Exxon Mobil, and Hewlett-Packard.

If you are not already a Follower, be sure to click the "Follow" button in the right portion of your screen so you can catch all of my new posts as soon as they're released!

Disclaimer:
· At the time of publication, I do not have any open positions.
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.
· It is important to do your own due diligence on any position you enter.

What Lies Ahead...

When I started this blog, I never expected to receive such an outpouring of support from so many unknown readers and followers. After nearly two months of projections and dissemination, statistics clearly show that more than 70% of the time, the estimates posted here have been closer to actual earnings than analysts' consensus.

So what's next? Well, throughout the month of June, I will be reassessing RIMM, GOOG, XOM, EBAY, KFT, and HPQ in order to make any necessary revisions for the upcoming quarter. Afterward, I will be posting new analysis and earnings estimates for many more U.S. companies. These may include such widely-traded stocks as MSFT, MCD, BA, INTC, AA, AMZN, CSCO, CAT, IBM, UTX, T, and WMT.

If you are not already a follower or an email subscriber, I encourage you to become one so you are alerted the moment a new post is published!


Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.

HPQ Shocks the Street

Second-Quarter Earnings Release

Actual Q2 Rev:  $30.85 Bil

Actual Q2 EPS:  $1.09

Hewlett-Packard Company (“HPQ”) reported earnings that far surpassed Wall Street expectations today.  Street consensus had Q2 revenue at $29.82 Bil, with a range of $29.51 to $30.22, and EPS at $1.05.  Actual revenue of $30.85 Bil exceeded even the highest estimates of all 31 analysts covering the stock.  However, the forecasts that I published early last week called for Q2 revenue of $30.78 Bil and EPS of $1.09.  These results, as summarized in the table below, were extremely close to the reported figures.  My revenue and earnings errors were 0.23% and 0.37%, while analysts’ errors were 3.34% and 4.05%, respectively.   

	Actual	Tyler Smithson	% Error	The Street	% Error
Q2 REV	30,849	$30,777	0.23%	$29,820	3.34%
Q2 EPS	$1.09	$1.09	0.37%	$1.05	4.05%

     

Actual Q2 Earnings
Income Statement
Three months ended April 30, 2010
Net Revenue	30,849
Costs & Expenses:
Cost of Sales	$23,601
R&D	$722
SG&A	$3,064
Amortization	$347
In-process R&D Charges	$0
Restructuring	$180
Acquisition-Related Charges	$77
Total	$27,991
Earnings from Operations	$2,858
Interest and Other, Net	-$91
Earnings before Taxes	$2,767
Provision for Taxes	$567
Net Earnings	$2,200
Non-GAAP Adj.	$604
Non-GAAP Adj. for Taxes	-$171
Non-GAAP Net Earnings	$2,633
Diluted EPS	$1.09

Once again, I find it very surprising that high-paid Wall Street analysts can be so inaccurate at predicting earnings.  Since the creation of this blog, I have been more accurate 71% of the time!  With the information that I freely and regularly provide, readers are better able to make informed trades. 

I encourage each visitor to click the “Follow” button in the upper-right portion of the screen.  By doing so, you are able to catch all of my new posts as soon as they’re released!  Also, don’t forget to sign up as an email subscriber!

HPQ Ownership

Author:   NO

Author’s Family:  NO

Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.

HPQ is Leading the Way

Hewlett-Packard Quarterly Earnings Estimates & Price Target

Q2 Rev Est.:  $30.78 Bil

Q2 EPS Est.:  $1.09

Q3 Rev Est.:  $30.80

Q3 EPS Est.:  $1.10

Figure 1

Income Statement
Three months ended April 30, 2010
Net Revenue	$30,777
Costs & Expenses:
Cost of Sales	$23,614
R&D	$708
SG&A	$3,027
Amortization	$384
In-process R&D Charges	$0
Restructuring	$85
Acquisition-Related Charges	$49
Total	$27,866
Earnings from Operations	$2,910
Interest and Other, Net	-$195
Earnings before Taxes	$2,715
Provision for Taxes	$507
Net Earnings	$2,208
Non-GAAP Adj.	$517
Non-GAAP Adj. for Taxes	-$167
Non-GAAP Net Earnings	$2,558
Diluted EPS	$1.09

Hewlett-Packard Company (“HPQ”) will report second-quarter earnings after the market close on Tuesday, May 18^th.  Current Street consensus for the quarter includes revenue and EPS expectations of $29.81 Bil and $1.05, respectively.  Both of these figures are below my estimates of $30.78 Bil and $1.09/share.  Similarly, when looking further into the future, analysts are currently predicting Q3 revenue of $29.77 Bil with an EPS of $1.06, whereas I am expecting $30.80 Bil in revenue and $1.10 in earnings.  If actual Q2 earnings confirm my estimates, share prices could see a nice bump upward. 

Once again, regression modeling was used to create the quarterly revenue predictions.  When creating revenue models, I always back-test them against the prior quarter to ensure their accuracy.  After this is completed, I then input any new available data into the models to arrive at the overall estimates.  Of the five forms of regression utilized for HPQ, the results were weighted to arrive at $30.78 Bil for Q2.  Below, I’ve included a little more detail into the composition of the quarterly projections for Q2 and Q3.

Figure 2

Q2 Prediction			Q3 Prediction
Model	Prediction		Model	Prediction
First-Order	$31,872.2		First-Order	$32,163.6
CFO	$31,760.3		Deasonal	$30,696
Deasonal	$31,359		Dummy	$30,794
Dummy	$31,042		Lagged	$29,509
Lagged	$28,894		AVERAGE	$30,791
AVERAGE	$30,777

1-Year Price Target

$56.06

The method I utilized to create this price target was the P/E approach.  First, I divided the current market price by the sum of the past three quarterly EPS figures and my Q2 estimate to arrive at a P/E of 13.44.  Next, I multiplied 13.44 by my estimate for full-year 2010 earnings.  The result was a one-year price target of $56.06.  I would like to note; however, that I used GAAP EPS figures and estimates in my calculations and not the publicized Non-GAAP figures.

I encourage each visitor to click the “Follow” button in the upper-right portion of the screen.  By doing so, you are able to catch all of my new posts as soon as they’re released! 

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HPQ Ownership

Author:   NO

Author’s Family:  NO

Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.

Sights Are Set On Hewlett-Packard!

Next up for analysis: Hewlett-Packard Company ("HPQ")

HPQ will release second-quarter earnings after the bell on Tuesday, May 18th. Be sure to become a Follower and subscribe via email to catch all of my upcoming posts!