A Look at Apple's Q2 EPS Estimate Trend

Apple Inc. (AAPL) is scheduled to release earnings for Q2 2008 Wednesday, April 23rd. Below is some brief information on the historical trend of consensus estimates and reported earnings. This is a primer for a follow-up analysis I am currently working on- which I plan to publish within the next couple of days.

Data from Yahoo Finance reports 26 total estimates for Q2.
High Estimate: $1.18
Low Estimate: $ .94
Mean Estimate: $1.06

Q2 Previous Yr: $ .87
Apple Guidance: $ .94

Yr/Yr Growth:
Analyst Estimate:22%
Apple Guidance: 8%

The estimates have changed little in the last 60 days. Three months ago, the consensus stood at $1.09 until Apple announced its Q2 guidance of $.94 which caused analysts to trim their forecasts. Within the last month, the mean estimate ticked up one penny.

In February, there was a wave of negative reports: suggesting lower iPod shipments, weak iPhone and Macbook Air sales. The reports would support the lower than expected guidance, questioning whether Apple is really low-balling again this quarter.

In March, a flood of reports suggested iPod sales weren’t as dismal as previously thought. Also, there were indications that Mac sales were very strong. The iPhone SDK release renewed enthusiasm and a shortage at retail stores hinted at healthy sales. Even with positive industry data reports on Mac shipments, the consensus estimate only rose a penny.

I believe the consensus is a bit low, calling for 22% Yr/Yr EPS growth. I predict Mac sales are up more than 50% to over 2 million units. The general trend of Mac strength should be further bolstered by the new MacBook Air and upgrades to MacBook and MacBook Pros released during the 2nd quarter. The year-ago quarter saw no new introductions or upgrades to the Mac line. The Street is forecasting Mac unit sales of 1.9 million.

Below is table of selected individual estimates reported by Zacks.

The table below depicts Apple’s earnings history reported by quarter. Percentage changes are displayed for Yr/Yr change for individual quarter, Yr/Yr change for last 4 quarters, and sequential change for last 4 quarters.

Apple’s EPS announcement history- Estimate vs Actual and 1 day change in share price.
Last year, Apple beat Q2 estimates by 36% and shares rose 3.7%.

Stock price activity around announcement dates.

Comments

[bobthenoob]

I predict 1.15

[Uruz1]

So if I get this right - and I'm really stretching my brain, here - you're saying that if Apple BEATS estimates, the stock will go UP. If Apple MISSES estimates, the stock will go DOWN.

I often wonder if people would write half the stuff they write if they still had to pay for paper.

[bobthenoob]

"So if I get this right - and I'm really stretching my brain, here - you're saying that if Apple BEATS estimates, the stock will go UP. If Apple MISSES estimates, the stock will go DOWN."

Though AAPL always beats estimates, the stock doesn't always go up as in these quarters:
Q1 2008 1.62 EPS estimate vs 1.72 EPS actual AAPL shares at -10.6%
Q1 2007 .78 EPS estimate vs 1.14 EPS actual AAPL shares at -6.2%
Q1 2006 .61 EPS estimate vs .65 EPS actual AAPL shares at -4.2%
Q4 2005 .37 EPS estimate vs .38 EPS actual AAPL shares at -4.5%
Q2 2005 .24 EPS estimate vs .34 EPS actual AAPL shares at -9.2%

[tom1234]

Stop ---last quarter apple did well and because of the economic forcast of a second quarter slow down-- apple forcasted a 2nd quarter to mirror those expectations and the stock dropped out of the sky along w/a million dollars of mine---

[dvd]

Suggest giving the data the "so what" test... does the data actually show anything, including NO trend/correlation which is what I deduce from these tables.AAPL seems volatile around earnings reports and other announcements (MacWorld product intros) but wonder if a timeframe of 3 weeks or 2 months would show a trend? Tho other factors intervene in a longer view (changing economy, housing crisis, etc.) a pattern may still emerge. Look forward to more.

[T Muller]

The most important factor is the outlook/guidance management provides along with the earnings announcement. Whether or not the company beats estimates is irrelevant if it guides down expectations for the next quarter. Such as the case last quarter with Apple with the 94 cent forecast when analysts had been expecting over $1.10.

[bobthenoob]

"Whether or not the company beats estimates is irrelevant if it guides down expectations for the next quarter. Such as the case last quarter with Apple with the 94 cent forecast when analysts had been expecting over $1.10. "

If all analysts believe Apple's guidelines, the stock will always go lower after each earnings. Last quarter's guideline was much lower than most analyst are comfortable with, which is fine... if the stock price becomes predictable, how else are you going to make money ;P

[T Muller]

Bobob-

I agree with you, stock will go lower if everyone believes Apple's guidance, and the investors know that Apple is conservative. i think last quarter though, Apple's guidance was much lower even after taking conservatism into account, Guidance only represented 8% growth year over year.

I think Apple was just being more conservative that usual due to the lowered visibility in Q2 from seasonality. Throw in a bleak economic picture, becomes difficult to forecast. If earnings are difficult to forecast then certainly the stock price will be impossible to predict. Let alone, stock price is most always impossible to predict, even if one ca accurate forecast earnings, he/she can't forecast investor sentiment. That's a job probably best suited for Miss Cleo

[Mr. A]

Apple's earnings guidance is not credible and farcical. When they guide, a guessing game ensues as to how much they are intentionally low-balling, and it happens every quarter.

Apple Investor Relations are irresponsible. They need to do one of two things.

1) Give realistic guidance, even if it means missing it and accepting the consequences that come with that. Now, they are intentionally low-balling (that's called lying), and it hurts the stock anyway, as well as their credibility. Excellence in guidance should be measured by how close it matches with real numbers.

2) Stop giving specific EPS and sales guidance completely. This is OK in today's world. Already, there are plenty of other institutions that make that call which are believed more than anything Apple does. Since no one believes Apple, and looks at their Investor Relations as complete assclowns, its to their advantage just keep their mouth shut, like Nokia and some others do.

[PK deC'ville]

I also think Apple should stop giving earnings guidance.

[jmmx]

1- Thanks for the data Mr Muller. Nice to see someone who puts out the data and lets us draw our own conclusions!

2- Last Q the stock "fell out of the sky" because (a) there had been a long run up, and more importantly (b) the looming financial crisis and the threat of the great Republican Recession.

3- I believe that Apples guidance was indicative of the uncertainty of the time. Please note: the term is "guidance" not "prediction."... They have a right to make conservative guidances. It really is the smart and responsible thing to do. IF the economic downturn had truly affected their sales as much as some people predicted, then the guidance may have been more in line. However, this did not happen, sales did not fall as many expected. So that guidance NOW looks a bit ridiculous. 20/20 hindsight.

Finally - for those of us who look at stocks as Investments rather than as a quick-turn day-trading game, we look to the overall, long-term trend, rather than obsessing over some bumps in the road. (I, btw, do both types of market games) Apple is clearly focused on the long term, and generally has little concern over interim fluctuations.

One of the reasons I like them.

IMHO