“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.]
It doesn’t make sense for AAPL to change their guidance system at this moment. If internally they’ve been using a PORK system, to switch to a more “accurate” PLTRY system opens them up for *two* quarters of disappointment. Traditionally, PORK front loads “bad news,” and enables them to recover from it when the numbers come in, i.e. lower and then exceed expectations.
Now would not be the time to change.
All the while biz journal is trying to slow iPad 2 sales with two articles; one staring a February release of iPad 3 and the other a January release. Who is paying them?
It appears to me as though the media and analysts are staging Apple’s most disappointing quarter ever with all this pre-hype speculation. Whatever Apple sells, it sells. No need to keep boosting estimates to ridiculous proportions. I’m really becoming displeased with this whole mess.
MDN should have also included a story with Horace Dediu’s estimate that he published today.
Squiqqles – you always uses these acronyms. Can you describe their full name so that we know that you’re not just making these up.
An alternative to the 2 options that the author is presenting is that Cook is having greater confidence in supply and demand. As a result he can make better predictions for revenue.
C’mon, everyone knows that PORK & PLTRY are just part of the larger BACN & PBAJ theories of corporate management. Don’t tell me you’ve been relying on BRGR or BLTA in this day and age.
doggonetoo – happy to. I’ll try and keep that in mind.
It never fails to amaze me how stubborn Apple bulls are when it comes to expectations. Although they watch Apple miss expectations and disappoint Wall Street and shareholders quarter after quarter, they always insist that the next quarter will be better and prove that Apple will exceed all expectations. It really never happens. Why should it?
The market has already rigged Apple’s expectations to miss. Analysts can set expectations to any level they want to while acting in collusion with hedge funds and institutions. Apple doesn’t have control over anything except to do the sell the most products they can. It still won’t be enough for Wall Street. It doesn’t make any sense why the Apple bulls don’t see such an obvious conclusion. I guess it just has to do with believing the faithful will be rewarded. This is Wall Street we’re talking about. Only the crooks are rewarded.
Although Apple will have one record quarter after another, thrusting the biggest company of the world further into the stratosphere, every Joe, Dick and Analist will be disappointed and the stock will tumble as planned by the crooks on Wall Street.
Nevertheless, Apple I unstoppable and will decimate Google, Microcrap and every other tech sewage peddler.
Go Apple!