I just want to clarify what my "Trading Recommendations" actually mean. First, the reason I italicize the word "Trading" is to stress it’s short-term connotation. The recommendations that I have begun issuing are only referring to the actual week (or day) of the specific company’s earnings announcement. Given the volatile tendency of stocks in the minutes after an earnings release, I am hoping to provide my readers with an opinion on how to profit from the volatility. So, for example, I currently have a "Buy Puts" recommendation on IBM. Therefore, I might buy put options on July 19 at 3:55 pm EST and quickly sell the options the next day in hopes of making a decent profit.
So, in summary, when you see “Trading Recommendation,” do not construe that as any type of long-term play on the stock; generally I am only recommending a day-trade.
IBM 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.
· It is important to do your own due diligence on any position you enter.
Analysts, on average, are forecasting second-quarter revenue of $24.23 Bil with an EPS of $2.58. Both of these figures are slightly higher than my estimates of $24.11 Bil and $2.54, respectively.
In order to arrive at the above estimates, I averaged the results of four types of statistical regression: First-Order Linear, Deseasonal, Dummy Coding, and Autoregression, as summarized in Table 1, below.
Table 1
Q2 Prediction
Model
Prediction
First-Order
$24,745
Deasonal
$24,546
Dummy
$24,834
Lagged
$22,294
AVERAGE
$24,105
After the Q2 revenue prediction was finalized, the next step involved using common size analysis to create the pro-forma income statement. Despite the fact that IBM is a large and relatively mature company in the Technology sector, their earnings as a percentage of revenue is somewhat volatile. Given this, I have confidence that each line of the below income statement is a good prediction of the quarter’s actual results.
Income Statement
Three months ended June 30, 2010
Revenue
$24,105
Cost of Revenue
$13,105
Gross Profit
$11,000
Operating Expenses:
SG&A
$5,335
R&D
$1,463
Int. Property
-$292
Other Ex
-$155
Interest Ex
$87
Total Expenses
$6,438
Income before Taxes
$4,562
Provision for Taxes
$1,189
Net Income
$3,372
Diluted EPS
$2.54
IBM Corp. will report earnings on July 19, 2010 after the market close.
Trading Recommendation: Buy Puts
Intel Corp.
Q2 Rev. Est.: $10.33 Bil
Q2 EPS Est.: $0.45
Analysts, on average, are forecasting second-quarter revenue of $10.26 Bil with an EPS of $0.43 for Intel ("INTC"). Both of these figures are slightly lower than my estimates of $10.33 Bil and $0.45.
When arriving at the Q2 revenue forecast, I once again averaged the results of the First-Order Linear, Deseasonal, Dummy Coding, and Autoregression models. However, unlike the models created for IBM, the models for Intel resulted in a much lower level of significance (R^2). The absolute average of the company's EPS surprises over the past year is 63%. This shows just how volatile Intel’s revenue can be from one quarter to the next. Given this unpredictability, I will not be giving a Trading recommendation for INTC.
Below is a summary of the composition of the Q2 revenue estimate (Table 2) as well as the projected income statement (Table 3).
Table 2
Q2 Projection
Model
Prediction
W/ St. Err.
First-Order
$9,403
$10,466
Deasonal
$8,899
$10,256
Dummy
$8,884
$9,974
Lagged
$9,528
$10,627
AVERAGE
$9,179
$10,331
Table 3
Income Statement
Three months ended June 30, 2010
Net Revenue
$10,331
Cost of Sales
$3,713
Gross Margin
$6,617
R&D
$1,570
MG&A
$1,469
R&D AND MG&A
$3,038
AMD Settlement
$0
European Commission Fine
$0
Restructuring & AI Charges
$0
Amortization
$12
Operating Expenses
$3,050
Operating Income
$3,568
Gains/(Losses) on Investments
-$10
Interest and other, net
$17
Income Before Taxes
$3,575
Provision for taxes
$1,033
Net Income
$2,543
Diluted EPS
$0.45
Intel Corp. will report earnings on July 13, 2010 after the market close.
Trading Recommendation: None 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! Earnings season will be starting up very soon--don't miss out on all of the day-trading action!
IBM/INTC 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.
Expectations are for revenue of $5.02 Bil and EPS of $6.58. My estimates are modestly higher than consensus with a 3.65% EPS surprise. Given the stock’s lackluster performance over the past couple of months, this earnings announcement could serve as a catalyst for an overdue rally.
Analysts are missing the mark, once again, with Exxon Mobil. Their performance last quarter was abysmal. Currently I am forecasting second quarter revenue of $89.87 Bil. Consensus is $98.92 Bil—a $9 Bil difference! One would assume that after missing by over $6 Bil last quarter, some major revisions would be made. Apparently that isn’t the case.
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! Earnings season will be starting up again very soon--don't miss out!
RIMM/GOOG/XOM 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.
