Apple Inc. (NASDAQ:AAPL) will report its Dec. quarter next Wednesday, Jan. 23, after the close. Many analysts have become bearish, but some are still bullish about the tech giant’s future. Shaw Wu, an analyst at Sterne Agee, released his earnings forecast, and overall he is very bullish. We summarize his thesis below:
Revenue And EPS
For the December quarter, Wu predicts $54.4 billion in revenue and $13.70 in EPS vs. consensus at $54.5 billion and $13.34 in EPS. Wu notes that both these estimates are substantially than guidance of $52 billion and $11.75 in EPS.
iPhone Sales And Margins
Wu continues to believe that iPhone shipments and gross margin will likely surprise to the upside. He sticks with his forecast of 47.5 million units vs. consensus at 46-47 million. Sterne Agee supply chain checks indicate much improved yields and ramped iPhone 5 capacity as the quarter has progressed. For this reason, the firm is modelling gross margin of 38.7% vs. expectations of 38.3% and guidance of 36%.
iPad Sales
For iPad, Wu believes that shipments will likely come in-line with expectations of 23-24 million ( Sterne Agee is at the midpoint at 23.5 million). The firms’ checks indicate robust iPad mini demand limited by production constraints and lower builds for the 4th generation iPad. Last but not least, Sterne Agee anticipates Macs to come in light at 5 million units vs. consensus at 5.2-5.3 million due to production constraints on the new iMac, as well as minor MacBook cannibalization from iPad and iPad mini.
Guidance Likely Vintage Conservative
For its March quarter outlook, Shaw believes that the company will likely revert to its vintage conservative style due to high expectations and frankly good old seasonality. He is modelling $44.4 billion in revenue and $10.99 in EPS vs. consensus at $46.9 billion and $12.10 in EPS.
But How Will Investors React?
The big question is how investors will interpret conservative guidance. With the current negative sentiment, the bias would be to interpret conservative guidance as weak demand and sell on weakness. Whereas in the recent past when sentiment was more positive, the same conservative guidance would be brushed off as Apple Inc. (NASDAQ:AAPL) sandbagging estimates and setting a very low bar.
Wu thinks that this upcoming Apple Inc. (NASDAQ:AAPL) earnings call is going to be “the trickiest as far as we can remember”, because near-term stock direction will most likely be entirely driven by investor sentiment.
Conclusion
Based on Sterne Agee supplier checks, the firm anticipates in-line revenue and an EPS beat driven by iPhone upside but guidance will likely be vintage conservative. They believe that there is great confusion with press reports of order cuts and weak demand.The reason is two-fold: (1) much improved yields meaning lower component builds and (2) supplier shifts. However, Sterne Agee believes that iPhone 5 demand remains robust. Price target is still at $800 a share, versus today’s close at $485.92.
