“Apple (AAPL) management has always been notorious for issuing low earnings guidance. This tendency to ‘sandbag’ the earnings forecast has led many research analysts to dismiss management guidance as meaningless,” Grant Wonders writes for Seeking Alpha. “Although bottom-up forecasts constructed by research analysts do produce estimates that are closer to actual EPS than management guidance, the ‘conservative’ guidance can also be used to extrapolate a ‘realistic’ EPS estimate. In fact, on a statistical basis, an extrapolation using Apple’s guidance has historically been more consistent than consensus estimates– suggesting that it may be better to fully dismiss the analysts and rely solely on Apple’s guidance.”
Wonders writes, “To steal a line from Mr. Jobs, the recent guidance provided by Apple is “simply amazing.” Apple offered staggering guidance of $9.30 for the quarter ending this December. This guidance alone represents mammoth growth of 45% year-over-year. If we factor in the historic conservatism of Apple’s management forecasts, the implied EPS number for Q1 is $13.02. At a year-over-year growth of over 102%, the Q1 earnings level implied by the most recent guidance absolutely crushes all analyst estimates.”
The astounding difference between guidance-implied EPS and consensus forecasts leaves only two possible scenarios.
1. Analyst estimates for the current quarter are completely off mark and are failing to model somewhere on the order of $3 billion dollars in profit.
2. Alternatively, (and most likely) management has suddenly broken its penchant for ‘sandbagging’ and become much more aggressive and realistic in guiding earnings expectations.
Wonders writes, “Either of these scenarios will have profound implications for Apple. Given the large disparity between guidance-implied earnings and analyst forecasts, the most likely case is that management has radically changed its messaging to stockholders regarding financial performance. Even though it will beat its guidance this quarter (say with EPS in ~$10 range), it will not be by anywhere near the same margin as it has historically. The change in posture raises questions regarding how Apple views its $80+ billion cash position in a post-Steve Jobs era (share buyback, dividend?). Otherwise, if guidance has remained consistent with history, Apple may well be preparing to report its most spectacular quarter ever.”
Read more in the full article here.
[Thanks to MacDailyNews Reader “JES42” for the heads up.]