The End of Another Era at Apple (AAPL)
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Everyone is focusing on Apple's (Nasdaq: AAPL) Q4 miss, but there may be a more important development from last night's report: how the company reports guidance and how Wall Street uses this guidance in coming up with estimates.
Apple is a notorious sandbagger, meaning the company always substantially under-promises on next quarter's guidance, consequently over-delivering each time it reports.
An example of this sand-bagging tactic is the company's Q4 guidance. When Apple posted Q3 results in July, management offered Q4 EPS guidance of $5.50, which at that time compared to the consensus of $6.42. Throughout the quarter the consensus ratcheted higher, getting to $7.28 before last night's report. Well, as we all now know, Apple posted Q4 EPS of $7.05 - missing the $7.28 consensus by $0.23. However, Apple beat its own publicly-stated Q4 EPS estimate by $1.55, or 28 percent.
The same can be seen for many quarters going back. In Q3, the company guided EPS of $5.03 and posted $7.79 (cons $5.80). In Q2, the company guided $4.90 and posted $6.40 (cons $5.35). In Q1, the company guided $4.80 and posted $6.43 (cons $5.38).
On average over the past four quarters, Apple has beat its internal guidance by 37 percent.
Last night, Apple issued Q1 EPS guidance of $9.30, actually ahead of the consensus of $8.98.
So an important question is if Apple has ended its sandbagging era.
If the company isn't ending the practice of under-promising and over-delivering, Apple could actually see EPS in the range of $12.74, based on its history of beating the internal guidance.
Alternatively, with Tim Cook now at the helm, we may not only be witnessing a new era of management at Apple, but also how the company communicates guidance.
After getting burnt in Q4, analysts will be very tentative in getting too far ahead of the company's Q1 guidance. As of Wednesday's updates, the consensus for Q1 is at $9.45, or 2 percent ahead of the company's guidance. As a comparison, last quarter analysts were 32 percent ahead of the company's guidance.
While a 37 percent beat-rate may now be out of line for Apple, don't be surprised when Apple posts its first double-digit EPS quarter as witnessed by the mad-dash to get the iPhone 4S.
For FY2012, Apple should easily post EPS of $40, suggesting a P/E of 10x based on the current market price of $400. Take out its $88/share in cash and you have a stock at less than 8x.
Apple is a notorious sandbagger, meaning the company always substantially under-promises on next quarter's guidance, consequently over-delivering each time it reports.
An example of this sand-bagging tactic is the company's Q4 guidance. When Apple posted Q3 results in July, management offered Q4 EPS guidance of $5.50, which at that time compared to the consensus of $6.42. Throughout the quarter the consensus ratcheted higher, getting to $7.28 before last night's report. Well, as we all now know, Apple posted Q4 EPS of $7.05 - missing the $7.28 consensus by $0.23. However, Apple beat its own publicly-stated Q4 EPS estimate by $1.55, or 28 percent.
The same can be seen for many quarters going back. In Q3, the company guided EPS of $5.03 and posted $7.79 (cons $5.80). In Q2, the company guided $4.90 and posted $6.40 (cons $5.35). In Q1, the company guided $4.80 and posted $6.43 (cons $5.38).
On average over the past four quarters, Apple has beat its internal guidance by 37 percent.
Last night, Apple issued Q1 EPS guidance of $9.30, actually ahead of the consensus of $8.98.
So an important question is if Apple has ended its sandbagging era.
If the company isn't ending the practice of under-promising and over-delivering, Apple could actually see EPS in the range of $12.74, based on its history of beating the internal guidance.
Alternatively, with Tim Cook now at the helm, we may not only be witnessing a new era of management at Apple, but also how the company communicates guidance.
After getting burnt in Q4, analysts will be very tentative in getting too far ahead of the company's Q1 guidance. As of Wednesday's updates, the consensus for Q1 is at $9.45, or 2 percent ahead of the company's guidance. As a comparison, last quarter analysts were 32 percent ahead of the company's guidance.
While a 37 percent beat-rate may now be out of line for Apple, don't be surprised when Apple posts its first double-digit EPS quarter as witnessed by the mad-dash to get the iPhone 4S.
For FY2012, Apple should easily post EPS of $40, suggesting a P/E of 10x based on the current market price of $400. Take out its $88/share in cash and you have a stock at less than 8x.
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