For his reaction to this evening’s earnings reports from IBM and Texas Instruments we bring you Mike O’Rourke of BTIG. He makes two good points, the first regarding the trend of top-line misses from the two companies (along with earnings beats), and the fact that investors are instantly selling on the not-that-bad reports:
The earnings reports from IBM and Texas Instruments cemented the theme for Q2 2010 earnings season – bottom line beats on earnings and top line revenue misses. It does make one wonder what was going through the minds of corporate managers failing to communicate the sales misses. Granted, the misses are slight so maybe it was a close call as to where the numbers would land as the quarter drew to a close. Maybe they thought the big earnings and great margins would score points with investors. Regardless, managers have lost the psychological benefit in the minds of investors of good bottom line results. Obviously the first response to any type of shortfall is the “shoot first selling” that has been occurring in the market place. Then what? Despite the revenue misses, are investors going to continually sell cheap stocks simply because they are cheap? Why? To favour the low yields of cash, or bonds or instead to purchase another inexpensive company equally as susceptible to these prevalent revenue shortfalls? For sustained selling to be maintained, investors will have to believe that a double dip in the economy is likely and that this is a peak in earnings being registered. It is hard to believe that just over a year removed from an environment where the financial and economic world was ending that an earnings peak is being registered. It is also worth noting that companies are not providing earnings warnings for the out quarters.