THE APPLE INVESTOR: Wall Street Expectations High For Quarter Tomorrow

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Photo: Associated Press

AAPL Hangs On In Weary Market
Shares of AAPL are hanging on this morning amidst continued concerns regarding the Goldman Sachs fraud fall out. Shares are trading relatively flat at $247.50 or 18x estimated fiscal-year 2010 EPS and 20x Enterprise Value / Trailing Twelve Months Free Cash Flow. The company reports earnings tomorrow after the market close. Expectations are high, and there’s a big risk that the stock will sell off on the news (a la Google). Additional catalysts include the domestic 3G iPad ship date (May 7); international release of the iPad (May 10); and the anticipated launch of the next generation iPhone (this summer).

Some Analysts Looking For Just An “In-Line” Quarter Tomorrow
Two analysts weigh in this morning before the company reports March Quarter earnings after the close tomorrow at 5:00pm ET / 2:00pm PT.

  • Thomas Weisel Partners analyst Doug Reid believes that after several estimate increases last week, Apple will likely report an in-line quarter. As MSFT is up 17% year-to-date versus the broader tech group at 9%, the shares will likely take a breather and create a buying opportunity. Reid increased his fiscal year 2010 and 2011 estimates to reflect strong momentum in the Mac and iPhone businesses. He thinks the shares could go even higher over the next 3-6 months and is increasing his price target to $300.
  • In a broader hardware note, Ben Reitzes at Barclays Capital believes Apple can out-pace the PC market over the long-term even with premium pricing. Reitze’s 39% year-over-year growth estimates for the March quarter might be conservative as checks indicate Mac sales remain strong. He maintains his Overweight rating on the shares.

How Will AAPL React To Earnings? It’s “Anybody’s Guess.” (Fortune)
A chart put together by Fortune’s Philip Elmer-DeWitt indicates that analysts across the board expect a big quarter tomorrow. Apple’s share price has been reaching new highs since early March, hitting an all time high of $250 last week (an increase of 220% over the last 15 months). Apple’s stock is trading well below that of other tech giants, as a multiple of TTM earnings.  Most analysts think the stock has further to go, but given the recent run up and the anticipation for a blow out quarter, “what the stock will do in response is anybody’s guess.” (Translation: Watch out for temporary dip).

What Really Matters: The iPhone, iPad And Valuation (Minyanville)
Minyanville’s Josh Lipton reached out to a few of the experts for thoughts on upcoming stock catalysts. S&P analyst Clyde Montevirgen believes the success of the iPad, the company’s newest business line, will drive the stock going forward. Gene Munster at Piper Jaffray estimates that the company will sell between 1.3 and 1.8 million this next (June) quarter. Montevirgen believes the biggest short-term opportunity for the company is the global smartphone market, or expansion of the iPhone. Jon Markman of Markman Capital says valuation at these levels is at the low end of the tech group (17x 2011 EPS), and that doesn’t even take into consideration Apple’s consistent guidance outperformance (putting it at more like 14x).

Some Universities Are Banning The iPad (The Wall Street Journal)
The iPad is not ready for some universities just yet. George Washington University and Princeton have banned use of the iPad on campus, citing security issues.  Meanwhile Cornell University is experiencing  connectivity problems. Many campus wireless networks block use of the iPad (or iPhone or iPod touch) because of fears that malfunctions could damage computer systems. This isn’t necessarily a long-term fear as Apple works with various partners to iron out launch kinks.  Then again, maybe there’s something to Israel’s ridiculous plan to ban the iPad, after all?

Publishers Seeing Some Traction On The iPad; WSJ Signs Up More Than 3,200 Paying Subs  (Business Insider)
Gillian Reagan at Business Insider reports that in the two weeks since the iPad was released, The Wall Street Journal convinced more than 3,200 new subscribers to pay up for its iPad only-subscription. The Wall Street Journal iPad edition costs $17.29 a month, or a little over $200 a year. That’s about twice as much as an online-only subscription at about $8 per month. (It’s not clear how many of these subscribers will pay for more than a single month).

Apple Replacing Intel And Samsung Chips With Proprietary Chips (Apple Insider)
A once exclusive relationship between Intel and Apple has officially soured. Intel has historically been the chip provider of choice for Apple, but that may soon change given the company’s recent talks with Advanced Micro Devices for some of its upcoming products. On the mobile front, sources have confirmed that Apple will use its own processor for the fourth generation iPhone, replacing Samsung. The move will likely boost margins as Apple will gain economies of scale by using it’s own technology from the PA Semi acquisition. It is also rumoured that the iPhone 4G will be made of ceramic.

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