Apple has gone from being a sure-thing rocketship to a train wreck, as far as stocks are concerned.Some people want to cry “stock manipulation,” but the stock is down 30% since the end of September. It’s hard to totally fool the market. Something is amiss with the company.
It reports earnings next week. In theory, that could help clear some of the confusion around the company. But in practice, it’s unlikely.
Sterne Agee analyst Shaw Wu points out in a report this morning that Apple’s tendency to “sandbag” its guidance could blow up in its face this time.
Wu is calling for “vintage conservative” guidance for Apple. Ben Reitzes at Barclays is also calling for super low guidance — “several billion” under consensus revenue.
Unlike in the past, the market might not react so well to low guidance.
Apple was known for setting comically low guidance then miraculously destroying that guidance. Lately, it’s not destroying its guidance, it’s just beating it. And lately, Apple’s stock has been crashing as investors lose faith in Apple.
Wu warns, “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 sandbagging estimates and setting a very low bar.”
So, Apple has kinda screwed itself.
The various reports about Apple cutting iPhone supply orders all centre on it cutting for the March quarter. Analysts generally have maintained their holiday quarter estimates. It’s the next quarter, and then the full year, that’s getting slashed.
If Apple releases low guidance, investors will see this as confirmation that Apple cut its iPhone orders, not another typical low-ball guidance from Apple.
If Apple truly demolishes expectations with something like 55 million iPhones and sets higher-than expected guidance, then the stock could get its mojo back. No one is expecting that at all from Apple right now.
The bottom line: If you think that Apple is going to report earnings and set the record straight on all of the rumours that have been swirling for the last month, you’re going to be let down. As Wu says, “this upcoming Apple earnings call has got to be the trickiest as far as we can remember because near-term stock direction will most likely be entirely driven by investor sentiment.”
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