With the recent correction in AAPL stock price, I thought it would be worthwhile to analyze projected Q1 2013 by way of modeling the company's projected, analyst estimated, and actual results from Q1 2012.
Apple (NASDAQ:AAPL) reports earnings for Q1 2013 on January 23, 2013 . At this time, there is still ample opportunity to exploit potential pre-release stock price movements as well as position our portfolios adequately for the actual Q1 2013 earnings release.
CEO Tim Cook stated that this holiday season quarter boasts "the best iPhone, iPad, Mac, and iPod products ever, and we remain very confident in our new product pipeline."  Keep in mind that Q1 2012 was 14 weeks, while Q1 2013 will be only 13 weeks. That means, effectively, that AAPL is losing 7.2% of "selling time" compared with last years holiday Q - and the numbers will have to be adjusted accordingly.
Company Projection Q1 2012 (from Q4 2011 outlook): "We expect revenues to be about $37 billion compared to $26.7 billion in the December quarter last year. We expect gross margin to be about 40% reflecting approximately $60 million related to stock-based compensation expense…We are targeting EPS of about $9.30." 
Q1 2012 Analyst Estimates (Early Jan 2012 Snapshot): For fiscal year Q1 2012, the consensus of the 46 analysts covering Apple is a per share value of $10.03 with the mean at $10.03 the high at $11.45 and the low at $8.88. 
Q1 2012 AAPL Actual Earnings: "The Company posted record quarterly revenue of $46.33 billion and record quarterly net profit of $13.06 billion, or $13.87 per diluted share. These results compare to revenue of $26.74 billion and net quarterly profit of $6 billion, or $6.43 per diluted share, in the year-ago quarter." 
Company Projection Q1 2013 (from Q4 2012 outlook): Peter Oppenheimer, Apple's CFO said "Looking ahead to the first fiscal quarter of 2013, we expect revenue of about $52 billion and diluted earnings per share of about $11.75." 
Q1 2013 Analyst Estimates (Late December 2012 Snapshot): The WSJ covering 50+ analysts has a mean EPS for Q1 2013 of $13.46 per share. Yahoo finance quotes a mean estimate of $13.31 (with a range of 11.53 to 15.50) from a survey of 45 analysts. Both these analyst pools show downward revisions in the prior 3 months, with WSJ mean dropping from $15.59 to 13.46 and Yahoo dropping from $15.42 to 13.31 .
Just breaking out Q1 2012 EPS, we can see that AAPL projected $9.30 and hit EPS of $13.87. Meanwhile, having heard the AAPL projections (and being familiar with its history of sandbagging) analysts were projecting $10.03 with a range of $8.88 to $11.45. Keep in mind, both AAPL and analysts knew it was a 14 week quarter, so that information was baked into both their estimates.
Clearly, there was a significant underestimate in both the demand for AAPL products and company execution. Gross margin in Q1 2012 came in at 44.7%  and as detailed above, the company had forecast margins of 40%. People seem to forget this - that AAPL also has a history of sand-bagging margin estimates. Note all of the recent media and analyst hand-wringing over projected Q 2013 gross margins; last year they beat their projected margins by 4.47%.
With that, let's move ahead to the projections for this year, Q1 2013. AAPL anticipates EPS of $11.75. Now, in the modern history of the company (with it's current product mix) it has never missed it's own estimates . In fact, they are famously conservative in estimates and always (even in the recent "bad" quarters - beat their own estimates by 7%+) .
In last year's holiday quarter, they beat by $4.57 or nearly 50%. If we modeled Q1 2013 estimates based on the dollar and % beat of AAPL's own estimates in Q1 2012, you would get EPS of 16.25 ($4.57 over projection) and $17.52 (% beat equal to Q1 2012).
Now, I would not count on these results, but there is no reason to think the company has changed the method with which they compute quarterly projections. They clearly only use guaranteed income which arises from a combination of guaranteed demand and production estimates. In this first cycle of a new product launch, there were probably more variables than normal, leading to more unknowns and thus a larger underestimation of potential results. Keep in mind, if you can say nothing good about AAPL - it is operationally brilliant and usually executes flawlessly. And, we know from several sources that production for the iPhone 5 has ramped up better then forecast and that iPad minis have been selling significantly better then expected (leading to a doubling of orders). It is doubtful that these 'additives' were included in the company EPS forecasts.
Additionally, the anticipation leading up to this earnings release is negative. And, leading up to earnings I prefer owning stocks which are temporarily under-loved rather than those which are over-hyped. The earnings risk/reward tilts in your favor. In fact, the average analyst EPS estimate for Q1 2013 has declined from $15.59 just 3 months ago, to the current mean of $13.46 (see above). This "earnings reset" gives AAPL a much better chance to exceed EPS estimates in the January announcement, perhaps significantly. Also, as we start getting early holiday sales results, we may have some analysts come out and revise upward their estimates, which could positively affect the stock price.
Ultimately, the stock sell-off and negative market perception combined with solid fundamentals as we approach the company's strongest quarterly results raises the possibility of an earnings beat and/or perception reset (through pre-earnings analyst upgrades or altered media attention). We can also see above that the company itself has a history of grossly underestimating margin and EPS, and they are calling for Q1 EPS of $11.75.
Given these factors (and the much talked about tax impact) I anticipate either a slow climb in AAPL share price into earnings (perhaps to the $575-600 range), or a milder ramp up into earnings and then a more significant earnings pop. I somewhat discount the possibility of a sharp rise in AAPL (to $600-650 pre-earnings; this would happen only if tax selling was really the major force driving AAPL down).
I am trading this with February 2013 Call options (I own $500, $540, and $550 strikes), accumulated in the past 2 weeks with a break-even AAPL price around $523 in total. I would shed calls pre-earnings if the stock nears $600, but anticipate holding them through earnings if the stock stays down at the $520-$540 level (where I think the risk/reward for holding through Q1 release is still very good). For those in for the longer term, long stock holdings are also a good bet.
Additional disclosure: Long AAPL Calls at multiple strike prices as detailed in the article.