Tomorrow night after the market closes Google Inc. (NASDAQ GS:GOOG) will report their 2009 first-quarter earnings. Looking at the estimates, it almost seems as if the market is doing everything possible to help Google beat estimates. But has the bar been lowered enough? Let’s take a look.
Like all companies, Google likes to have positive earnings surprises. Last year, Google had positive surprises three out of four quarters. It beat estimates by an average of 21 cents per share, or 4.5%.
In the fourth quarter of 2008, arguably just as bad economically as the first quarter of this year, Google beat earnings by 15 cents, and posted an EPS of $5.10.
Google’s EPS for the first quarter of this year is expected to be $4.91. So the bar has been lowered by $0.19 for this quarter versus last quarter.
But this “lowering” of the bar has been accelerating recently. A week ago, the estimate was for earnings of $4.98. Thirty days ago it was $5.01.
Remember, when Google beats estimates, it beat by an average of 21 cents, which if it holds true would make this quarter’s EPS $5.12 ($4.91 + $0.21).
This would not only allow Google to handily beat this quarter’s estimate, but it would also actually beat last quarter’s earnings by $0.02.
If GOOG beats estimates this handily, the stock should move higher. And a positive earnings announcement from a company such as GOOG would surely be an adrenaline shot for the market.
But is it all just earnings? Not really. There is also the technical and sentiment to consider.
On the technical side, GOOG is running into overhead resistance from the 200-day moving average as well as the upper rail of a trend channel. This could go one of two ways: it could act as resistance and hold GOOG below $375/share. Or, with a positive earnings announcement, GOOG could rocket through the resistance and move sharply higher.
Looking at the sentiment picture, Google has 28 buys, 6 holds, and 1 sell. So there isn’t much room for upgrades to push the stock higher.
So looking at the overall picture it seems GOOG has one positive going for it (easier to beat expectations) and two negatives (technical resistance and overwhelmingly positive analyst coverage).
So how will this play out? If I had to guess, it will be that GOOG beats estimates, but doesn’t beat last quarter’s numbers. To me, that isn’t good news, but the market may view it otherwise. Expect GOOG to move higher through resistance and move towards $450/share.
