Will Earnings Take a Bite Out of Apple?

07/23/2012 4:48 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Buyers may be delaying their iPhone purchases again, in anticipation of a new model this fall, but that should be better baked into the earnings guidance this time, writes MoneyShow's Jim Jubak, also of Jubak's Picks.

So what is Wall Street really expecting from Apple’s June quarter earnings report tomorrow, July 24, after the market close in New York?

The official consensus at the moment calls for earnings per share to climb 33% year-over-year, to $10.38, and revenue to grow 31% to $37.43 billion, but Wall Street analysts have been very busy cutting their estimate in the last few days.

The most recent of those cuts aren’t reflected in the official tabulation, and with analysts cutting official estimates like this, it’s typical for the Wall Street whisper number—the unofficial Wall Street projection—to be lower than the official consensus.

And that will, of course, change how Wall Street reacts to tomorrow’s numbers.

Wall Street analysts have been expressing increasing doubts that Apple will make the consensus numbers for two reasons.

First, there’s a belief that the expected launch of a new iPhone in October will cut into iPhone sales over the next few months as consumers decide to wait for the new phone. That’s exactly what happened last year ahead of the release of the iPhone 4S, and it is likely that iPhone sales will lag ahead of the release this time around too.

Apple missed earnings estimates in the June quarter last year for the same reason. Apple has built that slowdown into its own earnings guidance, with the company saying it expects earnings per share of just $8.68 for the period, and revenue of only $34 billion.

Second, analysts have raised the possibility that revenue will come in light this quarter because of delays that have limited sales of the most recent iPad release. During Apple’s March quarter conference call, the company said that iPad production was constrained by limited supplies of the iPad’s new retina display.

The same problem is likely to have an effect on sales of the new MacBook. Apple’s online store is quoting a one- to two-week wait for models with the new retina display.

In light of this analysts have been hedging their bets. For example, analysts at Sterne Agee came out today with a research note saying that revenue could be light in the quarter, but still predicting that earnings for the quarter would beat estimates. Sterne Agee estimates revenue of $36.1 billion (versus the Wall Street consensus of $37.2 billion) and earnings per share of $10.16 (versus the $10.38 consensus.)

My best guess is that if the stock does sell off on any disappointment with the quarter, the drop will be short-lived. Wall Street has extremely high expectations for the new iPhone launch. I’ve heard hyperbole like “most powerful mobile phone upgrade cycle ever.” I think there are enough potential buyers on the sidelines waiting to get in on October’s hoopla that any drop will be seen as a buying opportunity.

I’m not going to increase my target price of $650 until I see the earnings report. But I don’t think I’ll be a seller on the news. (Apple is a member of my Jubak’s Picks portfolio.)

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Apple as of the end of March. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.

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