Earnings season is upon us. While we have a dozen key banks and financial giants reporting this week, it may end up being the technology week that shapes the rest of the tech sector earnings reactions. This week we have IBM (IBM), eBay (EBAY), and the biggie that everyone will be watching, Google (GOOG).
We already saw Intel (INTC) blow out their numbers last week and offer better guidance, yet there was profit-taking on a sell-the-news reaction. Then this weekend Barron’s said to buy the dip, and as it turns out the average price target on Intel has climbed slightly higher than at the start of the year to $24.88 from $24.04. This morning we saw the trading community take Barron’s advice–they bought the dip as shares were up close to 1.5% this morning.
IBM (IBM) reports Tuesday after the closing bell, and Thomson Reuters has estimates for this quarter pegged at $3.47 EPS and $26.96 billion in revenues. Next quarter estimates are $1.91 EPS and $23.33 billion in revenues.
Interestingly enough, IBM is one of the few big giant tech companies that guides earnings and/or revenues out more than a quarter. Its estimates are $10.88 EPS for fiscal 2010 on revenues of $98.64 billion, and the company already noted at its last earnings, “We again raise our full-year expectations and we remain well ahead of pace for our 2010 road map of $10 to $11 per share.”
In determining the guidance, the backlog is always crucial to monitor and that was listed as $134 billion a quarter ago. The biggest problem that IBM has is that of valuation and its share price. Twelve times this year’s expected earnings doesn’t sound high at all, but at $133, its average analyst target is not quite $137.
Either analysts need to update their price targets for the bull market or the stock’s 52-week range of $81.76 to $133.27 needs a breather considering that the high was this morning. The highs back in 2000 kept hitting just under $135, so a significant move up here would mean the stock is at all-time highs.
eBay (EBAY) reports after the close on Wednesday, but perhaps the only reason this one is so systemically important is because millions of us use eBay each year to buy and sell goods. This will be a transitional report because it includes the Skype majority-control sale. The company has a monopoly, so its impact is limited as far as where else to look to draw comparisons.
Thomson Reuters has estimates of 40 cents EPS and $2.28 billion in revenues. The firm does often give longer-term guidance, and that figure for fiscal 2010 is $1.61 EPS on earnings and then $9.06 billion in revenues. At $23-plus today, its 52-week range is $9.91 to $25.80. This stock got dirt cheap and management couldn’t explain how cheap it was nor how disappointed they were. Now this trades at just under 15 times 2010 earnings estimates, so it isn’t expensive, but isn’t exactly cheap. What it does have going for it is that it has higher capital now to make shareholder-friendly efforts, and it was just in 2006 and 2007 when this had been a $40 stock.
Google (GOOG), the Big Kahuna of the Internet, reports after the closing bell on Thursday. Thomson Reuters has estimates at $6.43 EPS and $4.89 billion in revenues. Keep in mind that the revenue figure is ex-TAC, meaning it is outside of traffic acquisition costs.
Jim Cramer and several others have been looking for upside in the quarter, and the recent weakness has been due to the China issue. The China issue will likely dominate the conference call Q&A, although the potential added revenues from the launch of Droid and the upcoming launch of the Nexus One will be an added juice that has not effectively been worked into the revenue side of the equation from analysts yet. At $588 this morning, its 52-week trading range is $282.75 to $629.51.
The fallout can impact many companies, but we’d pay attention to Yahoo! (YHOO) and Baidu (BIDU) more than other software, mobile, and hardware players. There is not a single options contract for February expiration with more than 10,000 contracts in the open interest, but there are many retail investors who have started migrating to trading out of the money puts and calls as their exposure in one and two contract transactions because the $600 or so share price is prohibitive to most.
On a secondary note, we also get the mini earnings duel in the outside storage world between Seagate Tech (STX) and Western Digital (WDC). Seagate is Wednesday after the close with estimates of 65 cents EPS and $2.85 billion in revenues and Western Digital is after the close on Thursday with estimates of $1.36 EPS and $2.35 billion in revenues.
Both companies are up huge over the last year and both are close to 52-week highs. Seagate has been the more volatile on a percentage basis. At $18-plus today, its 52-week range is $2.98 to $19.04; Western Digital is north of $44 today, and its 52-week range is $12.01 to $47.44. Analysts on average see more upside still in Seagate as the target price there is $21.79 versus $45.55 for Western Digital.
The biggest issue here is that these companies HAVE to beat and raise guidance for there to be much more room. They have enjoyed fabulous recoveries and storage is getting cheaper and cheaper each month as the competition is heating up. How cheap can a Terrabyte of personal storage cost you? About $100 and some change…
Unfortunately, the options trading that usually includes many of the companies is harder and harder to use for a reference point for speculators this week because there is effectively five weeks of trading days until options expiration date in February, and that will add much time value, plus the value for the event risk.
The media keeps telling you that this may be one of the most important earnings seasons ever. They always say that. But for the bull to keep its charge, these companies cannot get away with meeting estimates. Most of these players now have to beat earnings and either raise guidance or sound very optimistic in their calls. Stay tuned.
