Apple revenue and EPS both higher than a year ago - that can't be bad. Buyback will continue, in Aug will see increased dividend. Fall has a busy schedule for new products. BRICS better than expected, especially China. Now eyes will be on new product announcements soon. Given low PE, company did better than expected and as such stock price should go a little higher.
1. Better than expected financials for 2H14, with increased outlook for 3Q14.
2. New product announcements this Fall including iPhone 6 and iWatch.
3. 8% higher dividend and $90 bi buyback in 2H14
4. New deal with IBM opens up enterprise market that's huge, at the expense of Microsoft, Google, Oracle, and others.
5. Current low valuation (FPE 20% discount from average FPE).
6. Possibility of being included in DJIA that will trigger new demand by index funds.
Z is at 50-day MA and try to test if it can bounce. However, given it's so far above 200-day MA line and the fact that stock lost momentum, it's likely that it will fall below 50-day line and towards 200-day line which is currently at $94. In early August, if there is any sign that revenue growth rate is lower than in 1Q14 or losses are higher than expected, stock could crash hard because of its extremely high valuation (worth repeating the fact that CEO and other insiders sold their entire holdings and Z's valuation is like 3 times other similar companies with similar revenue growth rates).
Sentiment: Strong Sell
Summer travel is huge this season, not just in the US but also in Europe - earnings should be great.
CEO sells his options the day he gets it and he no longer holds any shares of Z. And this is happening right before the earnings report. What conclusions would make sense to you given these facts?
CEO and other insiders played it smart. They artfully created false momentum, pushed stock price up, and then sold most of their shares at inflated prices ("pump-and-dump" is illegal now). When 2Q14 results are announced in early August, a similar headline on declining revenue growth for Z (revenue growth propelled stock to obscene levels even in the absence of any profits) will crash its stock price.
"What Will Future Normalized Earnings Look Like:
2013--Earnings should come in at around $1 based on analyst expectations. In addition, a significant amount of capital could be returned to shareholders. Next year’s earnings plus the earnings from the 4th quarter will allow BAC to return up to $18 billion to shareholders. Moynihan said after BAC reaches Tier 1 cap ratio of 9% (currently at 8.97%), capital will be returned to shareholders on roughly a 1/3 for buybacks, 1/3 to dividends and 1/3 to grow the business
2014--Pre-tax earnings will grow significantly from a base of around $13.5 billion in 2013. In 2014, many of the initiatives aimed at reducing costs will be in place.
2015--In 2015, the majority of the litigation, representation and warranties expenses and other overhang from the financial crisis will be over.
Historically large money center banks have earned on average between .75-1.5% after tax earnings as a percent of assets. Given the increase capital ratios required going forward, I expect Bank of America to come in at the lower end of that range at around 1% once they have cleaned up the current mess. This would result in pre-tax earnings in excess of $30 billion per year."
Bad news for you. By end of July it would be over $17 and by the end of the year over $20. Next year $25+. In 2016, $35. Shorting doesn't look like very smart. Moynihan has said that BAC could earn as much as $30 bi a year once pass these lawsuits and settlements.
That number is actually Moynihan's. Some time ago, he said that once BAC starts making normalized earnings, it's different strong franchises could earn as much as $30 bi a year. I don't think he was talking about 2014 - probably 2015.
1. FRB should announce before Aug 1 that BAC can increase dividend but no buyback for now.
2. DOJ and BAC should settle for $15 bi with favorable tax consideration and $9.5 bi settlement with Fredie/Fannie counted towards this new settlement.
Those two announcements would be enough to put BAC on track to normalized earnings in 2H14. If BAC earns $30 bi next year or year after, stock could appreciate to $35 range. Say 100% gain potential over two years. Current book value is almost $21, a 1.5 BV puts it at $32.
Today's small gain with very low volume sets the stage for a big decline on Monday with heavy volume. This has happened twice before - history should repeat itself. I expected big decline today, as a follow up to yesterday's decline but didn't happen. ER in early Aug will show declining growth in revenue which would be a killer. By end of Aug, below $90.
Sentiment: Strong Sell
A clue into 2Q14 report coming up in early August? I suspect revenue growth is slowing down and that could trigger massive sell off. Keep in mind that analysts' target price for next 12 months is only $110, so this stock is clearly overvalued. If insiders are selling as soon as they get their options and the fact that it's overvalued set the stage for Z to come down to more reasonable level compared to other competitors (and that level is $50-60 range) perhaps after the 2Q14 report comes out in early August.
Sentiment: Strong Sell
I will go on a limb and say that tomorrow will see a real dump by LONGS and Z will go down to $112 range. Given it's Friday and so much going on in Ukraine (which could directly pit US against Russia), Z investors might be tempted to take their profits and run.
Huge ad campaign will cost a bundle, so they will lose money. If they report huge revenue growth, I will be skeptical. Future reports should show that growth of 50-60% is a manufactured dream - even if in early Aug somehow management is able to convince they are a growth company, reality will bring their sand castle down rather quickly thereafter.
If fewer sales are being made, that means fewer people looking to buy, that means no need to browse house availability - on-line - mobile are just the means how to get info, but you need people who want info. So I don't get your point. Z's stock price is based on the premise that revenues will grow 50-60% a year - if the housing market cools off, I don't see how Z can achieve revenue targets if there are fewer people looking for a house. There is a huge disconnect.
Another option for these two big holders is to sit tight and let Z fall down slowly. But they are investors and they like to make money, so it's very unlikely that they will back and see their profits evaporate. My expectation is that they will sell some and lock in profits (they already lost 10% of their profit opportunity, if they didn't sell at $145).
Two big holders that own like 40% of float have been sitting tight on their position - but if housing market softens as interest rates go up and Z is unable to grow revenue by 50-60% a year (which is the basis of astronomical rise in stock price that is 3 times more than competitors with similar revenue growth rates), then it raises the million-dollar question for them as to what to do. If they sell, stock price could collapse to$80 just like that (because there are no LONG buyers, yes there are SHORT buyers). If they don't sell, lack of demand will push it down any way and their ability to keep Z high would require a lot more capital than before and it would become way too risky. I think they will unload some of their shares regularly and lock in profit. That means, Z will go down slowly but eventually settle down around $50-60 which is supportable by market demand/supply forces.
Sentiment: Strong Sell