Awaiting Apple Earnings and Guidance 38 comments
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It’s earnings season my friends. Most of the S&P 500 will be reporting in the next 2-3 weeks, including our beloved Apple. Monday night we had Bank of America (BAC) report a 68% drop in net profits and announced it will cut dividends by half!
Last night, Alcoa (AA) reported a 52% drop in third quarter profits, and that it is suspending its stock buyback program and all non-critical capital projects. Today we have Costco (COST) next up on the chopping block.
These coming weeks will be the time to separate the dregs from the strong. A cleaning out process that we must endure for the betterment of the economy. There will be many companies that will fail in this process, as there have already been. And very few will come through unscathed.
This parade of despair will be entangled with continuing deterioration of economic indicators. I'm sorry for painting such a bleak picture, but it is the reality.
When it’s Apple’s (AAPL) turn, it will undoubtedly report outstanding numbers, blowing away all analysts estimates. I’m sure of this, through anecdotal observation: every time I visit my local Apple Store it’s packed with people and product is flying out the door.
The company is sure to announce that it trounced the its goal of 10 million iPhones shipped in 2008. Then it’ll follow that up with the introduction of new products, probably just ahead of earnings, that will once again prove that Apple is the de facto leader of tech.
But after all that, it’ll have to provide forward looking guidance. And I can tell you right now that won’t be pretty. And Apple stock price will plummet, despite its outstanding fundamentals.
(click to enlarge)
You might think that the market has already priced in the bad news, especially when you consider that the stock has dropped 50% in the last month. How could it possibly drop any further? There is price support for Apple around $86 and then strong support around $74, so it appears what will happen is that Apple will drop within that range and trade there until it reports earnings.
What are the consensus targets of the analysts that cover Apple? According to Business Week, their survey of 32 Apple analysts shows the range for Apple Q4 earnings is from $0.95 to $1.36, with the average coming in at $1.12 on $8.1 billion in revenue.
The forward guidance is expected to have Q1 earnings of $1.74 on revenues of $11.0 billion. If Apple’s CFO, Peter Oppenheimer, reports anything south of these numbers, expect a big selloff.
Actually, expect a big selloff no matter what he reports. Perhaps Apple’s earnings call will be the the catalyst for market capitulation?
Disclosure: Cash
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This article has 38 comments:
how the hell do you know the future? the past is certainly no indication. I would say this time you are wrong. the market will bottom before apple reports and this time apple will trade higher after earnings. let's start seeing life half full.
What is this a friggin' parallel reality, here?
Time to stop these ridiculous guessing games, now!
Shoot the analysts, hedgefunds, shorts, and, let's not forget, the good-for-nothing SEC.
You going to punish Apple, as the messenger?
The Apple philosophy is using cash to protect them from bad economy, bad decision and buy good company at cheap price. If Apple buy is own stock, they expose them to financial crisis and other disastear.
i think Apple should evaluate to buyback at 25$ a share. This way Apple doesn't expose themself to other mercy.
Nothing stop investor to buy this very attractive stock. If you think Apple should make a good move to buyback their share what about you buy some?
You're assuming that Apple has not grown the business at all? Up until a a year ago, Apple was growing earnings by 60% Y/Y. Now, we can't assume that... but in order for your "grossly unreasonable" to be true, it would mean you are completely ignoring any thought that Apple has gained SIGNIFICANT market share the ignored the fact that Apple had only a very small amount of deferred revenue from iPhone sales in Q1 last year, while this year they should be pulling in revenue based on 1/8th of something well over 15 Million iPhones.
You're seriously missing some very fundamental things.
So, revenue growth should be expected to slow (even if unit growth is maintained) and earnings should be expected to shrink.
I expect an increasing number of companies with ready cash and good profits to be weathering the storm this way. Several already are.
How would a significant stock buyback program (say, $15B) at Apple change your thinking?
How many people will be buying Macbooks and iPhones if the unemployment rate is 25%? How about if the credit card companies fail?
In today's WSJ, the front page story is that one mortgage in six is under water in the USofA. The state of California is requesting a bailout from the federal government. The national debt has jumped up by about 50% in the past couple of months, after doubling over the past 8 years. There is a very real possibility (possibility, not probablility -- I hope) that the United States might suffer economic collapse, and idiot senators and representatives are throwing hundreds of billions of additional debt on the bonfire.
And you think that the markets will bottom in the next couple of weeks?
Get real.
It should be clear by now that Apple management is not concerned one iota of the shareholders near-term needs, because they know in the long term, the choices they make today will benefit them tomorrow.
Think market share and user-centric design. Apple wants to change the world here, not with investors wallets.
Are you really saying Apple will drop to the $80ish area and THEN have a big sell-off? Meaning Apple will soon be trading in the $60's? That's really would be interesting.
Of course this is all wild-ass speculation on my part. But it is fun to speculate when you have no skin in the game. I can be far more objective.
sgmsg: I wish Apple DID use its cash hoard to buy up other companies. I've seen analysts' comments urging them to do so. For a little spare change they could buy up a few dozen products from utility-program vendors that are needed to flesh out the usability of the Mac OS X. Those features should be part of the OS, to give users a more pleasant experience.
At current pricing, the market capitalization of General Motors (NYSE:GM) is under $4 billion. How about if Apple just buys them, for cash? If Apple installs integrated iPod / iPhone holders in each and every new model, they'd probably get at least several million more iPod sales... They could get Jon Ive to work some of his magic on the GM product line, and maybe come up with vehicles that people around the world would want to buy....
Today's low, just after opening, was 85.68, so maybe we've tested the low and gotten strong resistance, given that it's now (11:21 ET) up over 93.50.
I'm really curious to know what the date is for Apple's earning's announcement--does anyone know?
If the stock were to fall to the $60 regime, there is the potential of taking the company private via a debt-leveraged stock buyback scheme or (because debt is pretty hard to come by in this economy) via a consortium of well-heeled investors + the (in a quarter or two) $30+B in cash within the company. I can see Steve Jobs, Bill Gates, Larry Ellison, and other Silicon Valley billionaires kicking in enough to do this.
Apple is a tremendous generator of profits, and would be an outstanding thing to have as one's private company in an uncertain world. Seems like billionaires, watching their equity holdings shrivel and wither, might want to take cheap, profitable companies private. Maybe even Warren Buffett might overcome his aversion to tech companies if the price was right.
If the economy ever improves, they can always sell them back to the public at huge profits in a future IPO.
Apple, on the other hand, could make higher use of this cash because they are: (1) in a different growth phase than cash cow MSFT; and (2) because they actually produce hardware could invest in production; and (3) they can invest in sales, retail locations etc. In fact, if you find the 'brick' rumor (novel production of aluminum cases in Apple manufacturing facility) plausible, then this could be a higher use of their cash.
We'll see. Although I'm very long Apple the market is throwing out the baby with the bathwater at this point. Apple does have one advantage that most people overlook, and that is that there is a market sweet spot that is if anything increasing its purchase of gadgets, and they don't want Dell stuff. We'll see.
Buffett says know your company and buy its shares. Apple is a great company and its heading for the stars. Ride the wild ride. :-)
en
Apple doesn't serve all markets equally, never has.
In other words, could companies like Apple actually receive disproportional valuation as investor money floods from companies like Dell, HP, etc. into Apple?
Just a thought. If you've followed the campaign this year you may observe that class warfare has been simmering below the surface. Apple doesn't cause that but could benefit from it.
Further, a buyback program to protect large investors like pension funds from embarrassment when they report their quarterly results is a different thing from a buyback that is merely a form of roundabout dividend. It's justified when the stock has been unfairly beaten down. Apple could take the position that its buyback is just a temporary measure, and that it will sell back the stock on the market in a year or two, when it reaches a reasonable level. And apple isn't the ultimate arbiter here: activated major-block stockholders like pension funds could start to agitate for it.
Prediction: Apple will announce a buyback program of $5 billion or more before year-end.
I'm fine with deferred revs, if analysts were building it into their models but they aren't. After 8 quarters, we should have the full effect of iPhone sales in earnings, but you don't see analysts making that adjustment at all.
Today a couple of them upgraded RIMM because of the imminent launch of the BB Storm; no mention of the impact of the economy on consumer sending. At least of these analysts recently citied economic concerns as the reason for cutting AAPL.
Well you gotta be absolutely licking your chops Zach with all that cash!!
Thank God for people like you. It is time for us to take back our markets.
We need to be researching with all means available to each of us, the illegal market manipulations that are occurring. THEY, and forced selling related to them, are what is driving prices down. Brokers encourage people to use margin loans. Some use deliberate bad low-ball bids to trigger all the stop loss orders. Then the market makers can claim justification to gap (rig, ratchet) the price WAY down, because of so many sudden sell orders. But these were not intentional sell orders. They were stop-loss orders based on the premise of an orderly market. There is no orderly market now- only a highly manipulated one. The brokerages are backed by large banks that need cash. The appear to be "looking the other way" because plummeting prices allow them to suddenly call margins loans in. The stock has been reduced in value 50%, for example, on purpose, so the brokers/banks can grab our money based on hugely and artificially devalued stock prices. They retain the stock in "street name", ans will soon enjoy all the upside, while those who used margin and didn't se the train coming suddenly have no equity - only debt!! If everyone quit using stop loss orders temporarily, and avoided margin, it would not be worth their while to do this. Shareholders, not "other" taxpayers, have already paid Wall Street many times over the Bailout amount. The percent losses occurring in stocks are calculated and engineered- not the result of any free market process. Haven't you noticed the complete lack of association between any earnings, and the rug suddenly being pulled out? The earnings are just used for disinformation/misinfo... purposes to hide what is really going on.
It is an improper taking of property from shareholders who are not sophisticated enough to know what was happening. Highway robbery.
People need to demand the S.E.C. stop the artificial manipulations that are occurring, immediately.
You are merely guessing as to what might happen on earnings day while the stock could be all over the place and at any price between now and then.
Granted the slow economy could and probably will take down their 4Q 2008 estimates and 2009 estimates but you don't even mention their cash cushion nor factor in the 50%+ drop in AAPL's share price to date.
Why come out now with such a negative, one-sided, simplistic and badly-timed article on APPL ?