Question:
So, Apple misses earnings estimate. I would like to know who/how earnings estimates are derived, and what is the meaning and subtle issues when a company hits, misses, or earns much more than estimates. How does an average guy use this info? What does it mean to us?
For the analysts, do the estimates matter, or does it really only matter if the company has missed them, beat them, or met them?
Answer:
Earnings estimates are derived from an average of all the analysts who cover a stock. In the case of Apple Inc. (NASDAQ: AAPL), the company does not provide much guidance on how the company is doing. In this case, analysts, generally, run their own mathematical models to determine what earnings per share should be. Companies often provide estimates for how much they expect to earn. They are not required, however, to offer guidance.
Earnings equal the amount of after-tax income produced during a quarter or year. Earnings figure prominently in determining share price, because they indicate if the business will be profitable and sustainable for the long term.
We feel the media makes earnings more important than they are in the near term. We look for trends in a company’s growth direction to see if it matches what the company expected.
We, of course, prefer when companies beat expectations, meaning their reported earnings per share come in above the analysts’ predictions. Meeting expectations indicates a company reported earnings in line with analysts’ estimates. Naturally, an earnings miss indicates the company came in below expectations. A company’s stock will often drop in price after a miss.
Question:
I believe the cloud computing trend is where the growth will be. What do you think of VMW?
Answer:
Cloud computing is where users can access and store their data and other computer applications on virtual servers over the Internet.
We recently added EMC Corp. (NYSE: EMC) to the Traditional Portfolio. The company owns 80% of VMWare, Inc. (NYSE: VMW). With help from its stake in VMWare, we think that EMC should be one, if not the biggest, beneficiary in the shift to cloud computing.
VMWare’s suite of virtualization solutions addresses a range of I.T. issues that facilitates access to cloud computing capacity. We think both of these companies should be solid long-term plays, particularly evidenced by the amount of longer-term contracts VMWare has. These long-term contracts are important, as it indicates businesses likely view VMware as a business partner. We deem VMWare a buy.
At Henssler Financial we believe you should Live Ready, which includes understanding the companies in which you invest. If you have questions regarding your stock holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
