Apple estimates still a problem, analysts say

Projections may set up iPhone maker’s stock for further losses

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 Jan. 28, 2013, 12:35 p.m. EST 

 

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By Dan Gallagher, MarketWatch

SAN FRANCISCO (MarketWatch) — Already heavily battered by fears of an iPhone slowdown following last week’s results, shares of Apple Inc. could be in for even more downside given high estimates on Wall Street, analysts warned on Monday.

Reuters

Apple CEO Tim Cook.

Two brokers issued notes to clients before trading opened on Monday, warning that current consensus projections for the latter part of 2013 may still be too high — despite the fact that most analysts covering the stock slashed their forecasts following the company’s earnings results last week. Those estimates could set up more declines for a stock that lost 14% last week alone and has plunged more than 35% from its peak in late September.

Apple’s AAPL +2.62%  shares shrugged off the warnings in early Monday trades, with the stock gaining 2.3% to $450.20.

The company issued its report for its first fiscal quarter ended Dec. 29 on Wednesday afternoon last week. While earnings were flat for the period, revenue fell slightly below analysts’ forecasts. 

Apple also told analysts that it was changing its practice on giving guidance, saying it now plans “to provide a range of guidance that reflect our belief of what we are likely to achieve,” as opposed to its highly conservative approach in past periods. Read: Apple shares tumble on results, forecast

“In essence, Apple executives were saying, ‘we are no longer going to provide low-ball guidance that we are going to crush; this guidance range is realistic, get in line,’ which sell-siders largely did, albeit at the high end of the range,” wrote Toni Sacconaghi of Bernstein Research in a note to clients on Monday.

Sacconaghi says the problem remains for the second half of Apple’s fiscal year — particularly the June quarter. He notes that Wall Street’s consensus is predicting a 1% sequential decline in iPhone sales for the June period, “which is historically unprecedented in the absence of a new device — which we would not hold our breath for (at least at this point).”

High estimates for the June quarter posed an even bigger problem for Will Power of Robert W. Baird, who downgraded Apple’s stock to a neutral rating on Monday, citing in part estimates that “we believe remain frustratingly too high.” He lowered his price target to $465 from $570.

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“We believe the company could be set up to miss June consensus when it reports March-quarter results,” Power wrote.

For the June quarter, the third period of Apple’s fiscal year, Wall Street is currently projecting earnings of $9.88 per share on revenue of $41.2 billion, having reported earnings of $9.32 per share on revenue of $35 billion for the same period last year.

Of Apple’s business, Power added that “while concerned with many of the stock/estimate dynamics over the near to medium term, we remain positive on Apple’s unmatched ecosystem, product portfolio, the likelihood for future innovation, and its balance sheet and cash generation.”

Dan Gallagher is MarketWatch's technology editor, based in San Francisco. Follow him on Twitter @MWDanGallagher.