03 Apple Earnings Strategies
Gene Munster of Piper Jaffray, a notoriously bullish Apple analyst, appeared on CNBC’s Fast Money today, he thinks Apple will report strong Q4 earnings after the close tomorrow. Munster said that the streets expectations are way too low. He cited NPD data that suggests that Apple sold approximately 11 million iPods versus the Street consensus of 10.8, and that year over year growth was 7% versus 6%.
So Munster concluded that despite an economic slowdown hitting the consumer electronic space, he believes Apple will weather the storm. He made the point that the modest price reductions leverages their unit volume to maintain their gross margins.
To put Munster’s words in perspective, he recently emphasized his buy rating on Apple, and reiterated his $250 per share 12 month price target. Now I’d really like to believe Gene, but his price rating is almost twice as high as other Apple analysts.
In the past, Apple has guided earnings per share on average 9% below Street expectations and revenue 4% below, he doesn’t expect anything like that this time around. Munster warns that Apple guidance could be even more conservative than before, He believes Apple will guide EPS 5% below consensus to about $1.41 and Revenues to 15% below, at about $10.1 billion.
Besides the earnings report, there’s a wild-card metric that investors will be tuned into, and that’s the number of iPhones Apple has sold so far this year. So, if you haven’t been living under a rock then you know that number is 10 million. The consensus estimate is 4 million units at the end of Q3. That would mean Apple would have to sell 6 million 3G iPhones to meet their own guidance.
Well there’s growing evidence that Apple will blow away this number. In fact the data says that they may already have.
Where’d this data come from?
There was a cooperative study conducted by members of the MacObsever AFB and Investor Village’s AAPL Sanity Board, led by member howlongtoretire to track IMEI iPhone numbers.
The IMEI, or the International Mobile Equipment Identity number, is unique to each iPhone, and from that number you can tell when the iPhone was produced and what lot it came from. Thus you can deduce approximately how many iPhones have been manufactured.
I participated in this study, and all you have to do is report the serial number along with the IMEI number to a designated topic on the AFB and howlongtoretire enters it into a Google Spreadsheet. If you want the link you can find it in the show notes.
The study concludes that Apple has sold at least 7 to 7.5 million iPhones in Q4. That’s 80% above consensus! That even beats Gene Munsters estimate of 5 million iPhone sales in Q4!
So we’ve got the analysts, the iPods, the iPhones and now the new MacBooks with their solid look and feel, the multi-touch one button pad. These babies will undoubtedly be big sellers into the holiday season, even with the depressed economy. I’ll be picking up my MacBook Pro right after Thanks Giving.
Let’s face it, Apple has a fanatical following and that following is growing. Market share for Macs has increased to 10% in the US as of September.
So what’s not to love about this company? The answer is simple. Nothing, I love the company, the products, the philosophy. But in this environment it means little to investors. Apple will blow away their own guidance, they’ll beat estimates, and then they’ll provide conservative guidance and all our elation will be deflated.
My general rule of thumb is to never carry a position through earnings unless there’s a convincing and compelling reason to do so. There’s no such case here, in fact recent earnings history has established a pattern that makes it clear that it’s best to sit on the sidelines.
The only thing I can see that could possibly boost share price is if Peter Openheimer announces a stock buy-back, maybe something in the order of $5-7 billion. But don’t count on it. Steve needs that cash for a rainy day.
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