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Apple's calendar year 1st quarter 2012 was arguably the company's biggest EPS blowout in history by beating Apple's own guidance by 35% and Wall Street consensus models by more than 25% in what has historically been a quiet quarter for Apple. Net income rose to $11.6 billion, or $12.30 a share, from $6 billion, or $6.40 per share, a year earlier. This had led to the same "rinse, wash, repeat" action whereby Wall Street analysts go back to their models and up their revenue, EPS, and price target estimates for the remainder of the year in a continual underestimation of Apple's earnings power.

I am no Apple analyst. I am writing this article for a common sense frame of reference that Wall Street seems to so often lack.

It is no secret Apple constantly sandbags their guidance numbers and subsequently crushes those figures every quarter in an under-promise over-deliver strategy (minus Calendar Q3 2011 when many i-phone users waited for an upgrade to the 4S in Q4). What is aggravating to me (and why I wrote this article) is the amount of sell-side Wall Street analysts who are continuously sandbagging numbers and defying basic common sense when writing research notes and coming up with new price targets. They obviously have a different agenda than trying to tell you facts (true future EPS projections) which I will illustrate shortly.

Apple's Q1 EPS of $12.30 initially gave me the conclusion that Apple will make at least $60 in EPS this calendar year (CY) 2012. At the time I had no objective evidence to lead me to that conclusion other than the fact I knew Apple's CY Q1 earnings had always been their worst quarter historically. So in a very rudimentary fashion I decided to go back through the past 4 years ('08 - '11) of Apple's earnings and see if I could extrapolate an estimated 2012 earnings range using the Q1 EPS data of $12.30.

The first thing I did was to simply rank every quarter based on the highest EPS quarter (1st) down to the lowest EPS quarter (4th) within its calendar year for the years ('08 - '11) See chart below (Exhibit I). Objectively from this data we can see that Apple's calendar year 1st quarter has always been its weakest the last 4 years coming in 4th every year since 2008. Extrapolating that data alone I think a safe assumption to make is that Apple will make at least $49.20 or ($12.30*4) in 2012 and any sell-side research not modeling at least $49 in EPS this calendar year more than likely has a different agenda other than telling you the facts. Here are a couple examples of upgrades to numbers post the Q1 blowout that I think defy basic common sense:

  1. Goldman set a new price target of $850 on Apple citing new projected CY 2012 EPS of $49.70
  2. Brian White, Topeka Capital Markets: "With another quarter of big upside from Apple and trading at just 9x (ex-cash) our CY 2013 EPS estimate (essentially modeling $52 EPS in CY 2013)

The second thing I did with the numbers is to find what % of total yearly EPS each quarter historically has provided Apple for the years ('08 - '11) and averaged those together to understand what % of Apple's yearly earnings come from each respective 1st through 4th quarters. I then used Apple's 2012 Q1 EPS to back into an estimation and range of 2012 earnings utilizing those averages.

Over the past 4 years Apple's Q1 earnings have contributed between 15% and 19% of each year's earnings. Therefore if this year's Q1 stays within that historical % range it would suggest Apple is going to make anywhere from $64 - $82 EPS in CY 2012 ($12.30 is 15% of $82 and 19% of $64). Secondly averaging the past 4 years CY 1st quarter earnings averages I found that historically Q1 has derived just over 17% of the total year's earnings suggesting that Apple is going to make $72 in EPS this year ($12.30 is 17% of $72.20). This is a very simple and rudimentary way of projecting Apple's 2012 earnings but I do believe it will prove to be more accurate than most Wall Street sell side research the majority of which is still modeling EPS below $50 for CY 2012.

Q2 2012 will be very telling. If Apple reports $13.00 or greater in a quarter prior to an iPhone refresh (in all likelihood the i-phone 5 will be released in the fall Q3 of 2012) then Apple will have made over $25 in EPS in the first 6 months of 2012. This leaves the back half of 2012 one in which Apple will have two huge catalysts to sell a lot more product via releasing the iPhone 5 (in all likelihood will be the largest product launch in the history of the world) and will ride home in the blockbuster holiday 4th quarter. Does your common sense tell you that Apple will merely match what it made in the first half of 2012 in the back half of 2012? That is what the Wall Street models are still predicting. You do the math.

EXHIBIT I:

(mouse over chart to expand)

EXTRAPOLATING APPLE'S 2012 CY EARNINGS USING Q1 EPS

*Bold Italicized numbers are estimations

2008

2009

Quarter

EPS

% CY EPS

Q Rank

Quarter

EPS

% CY EPS

Q Rank

CALENDAR YEAR

Q1

1.16

15%

4th

Q1

1.33

16%

4th

Q2

1.31

17%

3rd

Q2

1.35

17%

3rd

Q3

2.69

35%

1st

Q3

1.82

22%

2nd

Q4

2.56

33%

2nd

Q4

3.67

45%

1st

TOTAL

$7.72

100%

TOTAL

$8.17

100%

2010

2011

Quarter

EPS

% CY EPS

Q Rank

Quarter

2011

% CY EPS

Q Rank

CALENDAR YEAR

Q1

3.33

19%

4th

Q1

6.4

18%

4th

Q2

3.51

20%

3rd

Q2

7.79

22%

2nd

Q3

4.64

26%

2nd

Q3

7.05

20%

3rd

Q4

6.43

36%

1st

Q4

13.87

40%

1st

TOTAL

$17.91

100%

TOTAL

$35.11

100%

AVERAGES

2012 ESTIMATION

Quarter

EPS

RANK

Q Rank

Quarter

2012

% CY EPS

Q Rank

CALENDAR YEAR

Q1

3.06

17%

4th

Q1

12.30

17.03%

4TH

Q2

3.49

19%

3rd

Q2

13.59

18.82%

3RD

Q3

4.05

26%

2ns

Q3

18.62

25.78%

2ND

Q4

6.63

38%

1st

Q4

27.71

38.37%

1ST

$17.23

100.00%

TOTAL

$72.22

ESTIMATED CALENDAR YR. 2012 AAPLE EARNINGS $72.22

ESTIMATED CALENDAR YR. 2012 EARNINGS RANGE $64.73 - $82.00

Source: Apple Unlikely To Report Less Than $64 In EPS In FY2012: A Look At Recent History