Hi everyone,

So as we come towards the end of Q1 earnings season I thought as a follow-on from my last post I’d take a look at how the results are coming in overall and take a look at a few stocks in particular that caught my eye.

First a quick look at the results themselves, well they have been pretty amazing. As of last Friday 83% of the S&P 500 firms had beaten analyst estimates, an impressive performance when compared against the historical average of 61% of firms beating estimates. And when we say “beat” we don’t just mean topping analysts estimates by a few cent per share, nope, on average companies are beating by a whopping 21%. Another point worth noting is that when compared to last year when many firms beat estimates (albeit very low ones given the turmoil caused by the financial crisis) it was mainly achieved through aggressive cost cutting. This year things seem to be taking a different shape however with many firms beating on revenues as well as EPS, a sign that things do seem to be looking up for the US and global economies after the pain of 2008 and 2009. According to Thomas Reuters 69% of S&P 500 companies have beaten on revenue estimates.

The results from the tech sector have been particularly strong with Amazon, Apple, Intel, IBM, HP, Microsoft and Google all beating estimates. Out of this bunch I thought I’d take a closer look at Apple, Intel and Google to see what drove their impressive earnings and how their shares reacted to the news.

No Surprise in Apple’s Upside Surprise!

Probably the standout results of earnings season so far came from Apple which produced a blowout quarter that topped even the most optimistic bulls who follow the stock. Apple reported reported EPS of $3.33 on revenues of $13.5 billion against the Street’s estimates of EPS of $2.45 on revenues of $12 billion – a 36% beat on EPS and a 12% beat on revenues. For a company that is so closely followed and analysed to beat estimates by so much is amazing, you sort of wonder why all these so called experts earn the big bucks they do when they can get it so wrong…

During the quarter Apple sold 11 million iPods, 8.75 million iPhones and close to 3 million Macs. The real upside surprise here came from iPhone sales where the highest estimates from the analysts were for 7.5 million units to be shipped. It appears the pros completely underestimated the volume of iPhones Apple is now selling outside the US– particularly in Asia where growth has being phenomenal. But you don’t have to go to the Far East to see the impact the iPhone is having on society, just take a look around the luas the next time your on it or scan your office to see how many people now have iPhones – the growth is scary. Expand that from little old recession hit Ireland to the rest of Europe and the World and you can quickly get a sense for where Apple is making it’s money.

Oh and the results didn’t even include the sale of a single iPad, of which Apple have confirmed to-date that they have sold over 500K, but that was in just the first two weeks of it’s launch. The reality is they have sold many more than this, with demand for the new device running so high that Apple have had to push back the international releaseof the iPad. Assuming there are no supply issues I see sales for 2010 running over 5 million units which should feed nicely into future earnings.

As for the stock, many wondered in advance if Apple could live up to the massive expectation which had seen its share price more than double in the last 12 monthsand over 15% since the start of the year. Well they need not have worried, the blow-out results backed up with raised guidance for next quarter saw the stock gap up 6% the next day to $258, and after a brief pullback to $256 the shares pushed higher from there, reaching $272.40 last Friday. Worries over Greece and Goldman saw a significant sell-off earlier this week but the key point to note was that during Wednesday’s big sell-off the stock held above $256, holding the gap-up which came after the results. In fact Wednesday’s low brought a lot of buyers in with Apple closing back up near it’s highs of the day. From a technical perspective this created a “bullish hammer candlestick” (see chart below) which is a bullish indicator, basically defining the maximum power of the bears. That bullish indicator bore true yesterday with the stock up $7, or over 2.5%, to close back near $269 a share. Another point worth noting in relation to Monday to Wednesday’s pullback is that it was on below average volume, compared to last week’s breakout which was on volumes well above the 3 month average.

Apple Gaps Up On Excellent Results (Click twice to Enlarge)

From here I think $256 defines our downside risk, but that’s still a long way from the current price so it’s not an ideal trade to jump straight into here. Ultimately I think Apple goes higher – we just need to bide our time for the stock to settle a bit more into it’s new trading range and look to get long on any low volume pullbacks. In my last Apple post2 months ago when I discussed the potential impact of the iPad I predicted Apple, then at $200, would hit $250 before the year was out. Little did I know at the time it would take it a mere 2 months to reach (and smash through) that target level! I’ll go again and this predict we’ll see $300 before the year is out…which should mean it will be there sometime in June given my track record!

Right in an effort to deliver on my promise of shorter, more regular posts I’ll call it a day here now and will follow-up with a look at Intel and Google’s results over the weekend.

Enjoy the bank holiday,
Happy Trading,
SpreadTrader.ie : -)