What the whisper numbers say about Citi, Schwab
These shadow estimates will have a big influence on how the market reacts tomorrow to the pair's fourth-quarter results
JPMorgan Chase & Co. led off a spate of earnings reports from financial services providers last Friday, reporting earnings of $1.12 per share before the market opened. That blew away the average analysts’ estimate of 98 cents and the so-called “whisper number” of $1.02.
With those kinds of results, you’d have expected a big pop in the stock price. Instead, the share price of JPMorgan rose less than 1%
It’s all about the expectations, says John Scherr, president of WhisperNumber.com, which regularly canvasses investors, floor traders, advisors and market strategists for their views on corporate earnings.
According to Mr. Scherr, JPMorgan regularly tops its whisper numbers — often by wide margins. In fact, the Wall Street giant has beaten its whisper numbers in 25 of its last 36 earnings reports, and by an average of 14 cents in the last four quarters.
Indeed, the market now expects the bank to beat its whisper numbers by sizable amounts. If it doesn’t, it gets hammered. “If JP regularly beats their whisper numbers by 14 cents, they have to keep doing it or they’ll get punished,” Mr. Scherr said. “They’re doing a poor job managing expectations.”
Both Citigroup Inc. and The Charles Schwab Corp. will report before the markets open tomorrow. The whisper number on Citi is $0.08 per share — in line with analyst estimates. Scherr called Citi a “neutral presenter” because it come in around analysts’ estimates and rarely beats or falls short of its whisper numbers by more than a penny. In other words, it’s not very interesting to short-term traders looking for big price movements.
The average 30-day price move when Citi beats its whisper numbers is -1.1%. It is -5.1% when it falls short. Lesson to investors: Wait a good month after Citi reports quarterly earnings before buying the stock.
Schwab, on the other hand, is usually good for some action — “a classic reactor” Mr. Scherr said. When the company beats expectations, it has an average 30-day price move of 6.9%. When it misses, it drops an average 8.3% over the same period.
This time around, the market may focus less on the whisper number. Last Friday, Schwab agreed to pay $119 million to regulators to settle charges related to its YieldPlus bond fund, a “safe, short-term” bond fund that turned out to be holding mortgage-backed securities during the financial crisis. The whisper number is $0.17, while the average analysts’ estimate dropped from 18 cents to 10 cents since the YieldPlus announcement last week.
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