Monday, October 19, 2009

What's Expected For AAPL Tonight?

AAPL will report earnings after the close today. Consensus estimates are for EPS of $1.43 on revenues of $9.22 billion (according to Reuters). Expectations always run high for Apple, and this time, they are likely high again due to the strong run up in the stock price, the fact that the company has topped estimates handily for the last four quarters and talk in the market that both Mac and iPhone sales have been strong.

Apple is also notorious for giving very conservative guidance and this time will be no different. Last quarter, it guided to $1.18-1.23, at a time when consensus estimates were for $1.30. Today's estimates are well above both of those levels. The company also said it expected gross margins to be roughly 34%, while expectations today are for margins above 35%.

Here are some of the other metrics investors are looking for:

# iPhone units sold of 7.5 million - This metric most likely determines the path of the stock price short term; strong past and predicted iphone sales most likely sends
the stock price higher

# Mac shipments of around 2.8 million units
# iPod unit sales of 10.5 million
# Comments on rumors of an upcoming Tablet launch (doubtful)

There has been a lot of talk that worldwide demand for iPhones is currently outstripping supply, and that if the company were adequately supplied, it could have sold a lot more phones. The CEO of 3 Italia (wireless carrier) indicated that the company is selling 20,000 iphones per month, but could sell double that amount if it had the supply. While this has positive implications for sales over the next few quarters, I will be interested to hear if management addresses this concern at all during the call.

There is also a lot of talk about when management will adopt a new accounting standard, which will change the timing of when the company can recognize revenues from iPhone sales, and would boost current estimates. While GAAP EPS estimates for 2010 are currently just north of $7.00, adoption of the new accounting standard would take estimates above $9.00. Analysts don't think this will change the stock valuation, as it is already known by the Street, but I still expect it to have a mildly positive impact.

The stock has had quite a run, and while it often pulls back after reporting typically conservative guidance, last quarter this did not happen. AAPL is executing very well, Steve Jobs is back, the iPhone is in China and there should be some Mac refreshes soon. Even so, I have trimmed some of my positions in AAPL. On a $10 to $15 pullback in the stock, I'd certainly add them back. If we do get a negative reaction to the earnings, it will likely to be another opportunity to add to positions as the company heads into its seasonally strongest period.

long AAPL

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