AAPL Fiscal Q3 Analyst Preview RoundUp

by Dan July 23, 2012 10:32 pm • Commentary

Before we get all AAPL’tastic on you tomorrow, here is a quick round-up of some Wall Street Analyst previews for AAPL’s Fiscal Q3 earnings that will be reported after the bell Tuesday.

But first, a couple post earnings move fun facts:  

-the options market is implying about a 5.5% one day move following the event which is a tad shy of the average move over the previous 4 qtrs of ~5.8%, but well above the 8 qtr average of 3.7%.

-whether it be 5.8% or 3.7%, these are massive average moves for a company that has had a market cap range during that 2 year period btwn ~$180 billion to the almost $570 billion mc now.

-Of the last 8 moves 5 have been up, and averaged ~4.22%, while the 3 down moves in that period have averaged ~2.93%.

Consensus Expectations:  In general EPS estimates have remained flat over the last month, while revenue estimates have come in a tad, (less than 1% per Bloomberg data)

Q3: EPS = $10.38,  Revenues = $37.33bn

Q4:  EPS = $10.26,  Revenues = $38bn

FY2012: EPS = $46.87,  Revenues = $161bn

Analyst Previews:  Wall Street Analysts are overwhelmingly positive on the stock with 49 Buys, 5 Holds and only 1 Sell, with an average 12 month price target of about $735, or about 21% higher than current levels.  Here are a few that I thought were pretty thorough:

Goldman Sachs-Buy /12 mth px tgt $850/July 18th, 2012:

We believe the iPhone 5 will be launched on time for the all-important December quarter, and we continue to believe the typical pre-launch pause in demand will depress legacy iPhone sales before then. While we are modestly raising our overall June quarter estimates, there are some moving parts to our forecast: we are slightly lowering iPhone unit expectations, raising iPhone ASPs, raising iPad units, and lowering Macs. We now expect June quarter revenues of $35.54 billion and EPS of $9.98 versus our prior estimate of $35.15 billion and $9.94. Consensus currently stands at $37.33 billion and $10.38. Our conservatism on legacy iPhone sales extends into the September quarter but is followed by an above-consensus December quarter as iPhone 5 shipments ramp. We also raise estimates for FY2013 andFY2014 on our optimism for iPhone/iPad trends and Apple’s competitive momentum.

Despite our near-term conservatism on iPhone units, we suspect the window for the bears is limited by the imminent iPhone 5 product cycle. In addition, we believe buy-side expectations for iPhone units are already very conservative for the quarter (26-27 million units) relative to our 28 million unit estimate, and most investors appear to be less focused on this short-term demand pause and increasingly focused on the iPhone 5 ramp. We would be aggressive buyers of Apple’s stock at current levels, and we reiterate our CL-Buy and 12-month target price of $850.


Morgan Stanley-Buy/Best Idea /12 mth px tgt $738 /July 17th, 2012:

AAPL is a top pick for C2H12. Although consensus C2Q12 and C3Q12 estimates may not fully reflect iPhone demand risk ahead of the iPhone 5 launch, investors are well aware of this timing issue. We expect positive data points around a new iPhone and potential iPad Mini to drive the stock near-term.

Our C2Q12 revenue and EPS estimates are 6% and 9% lower than consensus, as we believe sell-side estimates of high-20M iPhones and mid-4M Macs do not appropriately reflect shipment seasonality before the product refreshes.

We model 27M iPhones, 16M iPads, 4.1M Macs and 5.9M iPods, resulting in revenue of $35.1B, GM of 43.1% and EPS of $9.45. Gross margin upside could offset shipment risk resulting in EPS closer to consensus.

We see two points of GM upside to our and consensus estimate of roughly 43%, assuming iPhone GM improves one point due to component cost declines late in the product cycle and iPad GM declines two points due to the iPad 2 price drop. This implies a 3.5-point beat against Apple’s GM guidance, which is in line with historical average. The GM upside could boost EPS to $10+ on our shipment numbers, more in-line with current consensus of $10.38. We expect conservative C3Q12 guidance.

C2Q12 Revenue and EPS Estimates Apple’s earnings guidance, 10-Q disclosures and supply chain data points suggest sell-side estimates may be too high in C2Q, as they do not appropriately reflect shipment seasonality before the product refreshes. Although our C2Q and C3Q estimates are lower than consensus, our CY12 revenue and EPS estimates of $171.6B and $50 are actually slightly higher than consensus, as we model a stronger C4Q driven by the next-generation iPhone and potentially an iPad Mini heading into the holiday season.

Apple’s June quarter guidance of $34B in revenue and $8.68 in EPS, provided on the last earnings call, were 9% and 12% below consensus at the time. Since 2008, Apple on average guided C2Q revenue and EPS 2% and 10% below consensus at the time of guidance. Since the US recession officially ended in June 2009, there were only two quarters where Apple guided both revenue and EPS below consensus more than historical averages. The first time was the September 2011 quarter, when management correctly anticipated that consumers would wait for the then new iPhone 4S, and the second time is this June quarter – also ahead of a new iPhone launch.


Piper Jaffray-Buy /12 mth px tgt $910/July 16th, 2012:

We believe investors should own AAPL going into the June quarter earnings as we expect the company to report iPhone units better than low expectations of the buy side. We believe that generally investors are expecting 25-27 million units in the June quarter, but we believe the number could be closer to 28-29 million.

From a bigger picture standpoint, the June iPhone number isn’t likely to matter much as we believe that September expectations for iPhone are likely to be reset following the June report as we move toward the expected October iPhone 5 release. We reiterate our Overweight and $910 target.

Bogey For June Results & September Guide. For upside consistent with the last four years (6% upside to revenue, 16% upside to EPS), Apple will have to report June revenue of $39.65b and EPS of $12.05. We believe given mix shift away from the iPhone its unlikely that Apple will report EPS of $12.05 or better. Assuming Apple guides the September quarter consistent with past guides since 2006 (2% downside to revenue & 9% downside to EPS) implies $36.3b and $8.97 EPS (Street $37.1b & $9.86 EPS for June). However, we expect a more conservative guide than usual because of our belief that the iPhone 5 will launch in October, while the Street has mixed expectations in terms of timing.

iPhone: (50% of sales) Expect 28-29m Units And September Reset. We expect 28-29m iPhones in June, ahead of buy side expectations of 25-27m. We remain confident that iPhone units could be better than the Street given industry discussions around sustained weakness at RIM and Nokia in the June quarter, but we do not believe smartphone sales have slowed significantly, suggesting market share shift to Apple and Samsung. Beyond June, we believe the Street will reset September iPhone expectations ahead of the iPhone 5 launch. We are reducing our September iPhone number to 24 million from 26 million to account for consumers waiting for the next iPhone.

iPad: (24% of sales) Expect 16m iPads In Jun. Quarter. We expect 16m iPads in June, which we believe is roughly in-line with Street and buy side expectations. We note the iPad is the toughest of the three product lines on which to get a read. We are comfortable with our 16m expectation (up 73% y/y) given that it is a meaningful stepdown from previous iPad growth rates. We note that iPad units have been up an average of 153% y/y over the past four quarters. We note that iPads have remained in stock over the past several weeks on the Apple Store, suggesting supply is meeting demand.


CreditSuisse-Buy /12 mth px tgt $750/July 13th, 2012:

Results on 24th July, reiterate Outperform. For F3Q12, we expect revenue/ EPS of $37.4bn (-5% qoq/+31% yoy)/$10.15 vs. consensus at $37.3bn/$10.33. We expect group GM of 42.4% for the quarter, though better than expected iPhone mix could drive upside to our estimate. Our FY12/FY13 EPS estimates stand at $46.27/$56.75. Given our view that Apple is well positioned to maintain momentum across key product lines driven by continued innovation in hardware, software and services, we reiterate our Outperform rating and TP of $750.

iPhone building toward strong C4Q12. We recently reduced our iPhone estimates to reflect increased carrier discipline on smartphone subsidies in the US. Our iPhone volume estimate for F3Q12 stands at 28.5mn units (-19% qoq/+40% yoy) and we see the potential for slight upside in the quarter. However, given low smartphone penetration, carriers’ inability to ‘collude’ for a sustained period of time, and the roll out of LTE/4G technology, we believe that these pressures on iPhone volumes may be a short term phenomenon. We forecast 26.5mn units (-7% qoq/+55% yoy) in F4Q12 followed by a stronger than seasonal 50.3mn units (+90% qoq/+36% yoy) in F1Q13 (calendar Q4) buoyed by the iPhone 5 launch which we expect in late September/early October. For CY12/CY13, we forecast 140mn/187mn iPhone units which implies global smartphone market share of 21%/22% respectively (up from 19% share in 2011).

iPad room for upside; continued strength in 2012. In the first full quarter of sales of the new iPad, we view our forecast of 14.7mn units (+25% qoq/+60% yoy) as achievable in the current environment. Amongst an increasingly competitive landscape, we forecast Apple’s tablet share dropping from 62% in CY11 to 50% long-term, though this may prove conservative given company’s compute advantage and aggressive pricing (something we discussed in detail in our note ‘Compute Market Update – Raising estimates, tablets driving growth’ dated 10 July 2012).

Valuation remains attractive. Trading on a P/E of 10.1x our CY13 EPS estimate of $59.15, valuation remains attractive given earnings CAGR of 30% between CY11-13E, LT EPS power of $75, and net cash of $117/sh.