Reset estimates leave Apple room to surprise - analyst
Unlike last year where consensus estimates ran unreasonably high for iPod maker Apple Computer, the Street's expectations for the new year have finally reset to a point where Apple has room to surprise, says American Technology Research.
"One of our key concerns on Apple in 2006 was that we believed published consensus estimates were too aggressive (particularly revenue) and no where near Apple's guidance, but more importantly, didn't make any logical (financial or business) sense," analyst Shaw Wu wrote in a note to clients Wednesday morning. "Fortunately for longs, most investors agreed with this assessment and discounted the nonsense and gave Apple a 'freepass.'"
Looking ahead to the next 6-12 months, Wu said consensus estimates appear more reasonable, and will likely prove conservative. "We believe estimates have finally been reset, leaving Apple room to surprise on the upside," he wrote.
In addition, the analyst is expecting strong product momentum in 2007 to be driven by the release of Mac OS X Leopard with tighter Windows integration that will help accelerate Mac sales, iTV ushering a new product category, new movie content partners, new iPod features including widescreens and Bluetooth, and cell phones.
As a result, Wu said he is introducing estimates for Apple's 2008 fiscal year of $3.50 earnings per share on $28.1 billion in revenue, compared to consensus estimates of $3.28 and $27.8 billion.
"We are assuming Mac growth of 23 percent to 8.8 million units, iPod growth of 9 percent to 47.3 million units, and cell phone contribution of $326 million, up from $100 million in [fiscal 2007]," he wrote.
In his note to clients, the analyst also said he remains comfortable with his estimates for Apple's recently concluded fiscal first quarter of 2007. He's modeling for earnings of $0.79 per share on revenues of $6.4 billion, which includes sales of 15.5 million iPods.
"We have noticed that consensus at $6.38 billion and $0.78 has moved closer to our forecast over the past few weeks," he added.
Wu maintained his Buy rating and $99 price target on shares of Apple.
"One of our key concerns on Apple in 2006 was that we believed published consensus estimates were too aggressive (particularly revenue) and no where near Apple's guidance, but more importantly, didn't make any logical (financial or business) sense," analyst Shaw Wu wrote in a note to clients Wednesday morning. "Fortunately for longs, most investors agreed with this assessment and discounted the nonsense and gave Apple a 'freepass.'"
Looking ahead to the next 6-12 months, Wu said consensus estimates appear more reasonable, and will likely prove conservative. "We believe estimates have finally been reset, leaving Apple room to surprise on the upside," he wrote.
In addition, the analyst is expecting strong product momentum in 2007 to be driven by the release of Mac OS X Leopard with tighter Windows integration that will help accelerate Mac sales, iTV ushering a new product category, new movie content partners, new iPod features including widescreens and Bluetooth, and cell phones.
As a result, Wu said he is introducing estimates for Apple's 2008 fiscal year of $3.50 earnings per share on $28.1 billion in revenue, compared to consensus estimates of $3.28 and $27.8 billion.
"We are assuming Mac growth of 23 percent to 8.8 million units, iPod growth of 9 percent to 47.3 million units, and cell phone contribution of $326 million, up from $100 million in [fiscal 2007]," he wrote.
In his note to clients, the analyst also said he remains comfortable with his estimates for Apple's recently concluded fiscal first quarter of 2007. He's modeling for earnings of $0.79 per share on revenues of $6.4 billion, which includes sales of 15.5 million iPods.
"We have noticed that consensus at $6.38 billion and $0.78 has moved closer to our forecast over the past few weeks," he added.
Wu maintained his Buy rating and $99 price target on shares of Apple.
Comments
So what am I missing? I thought that Apple 'beat' consensus estimates every quarter in 2006. How does that make for 'unreasonably high' esitmates?
Look to last years first quarter. The predictions were for a phone line, new iPods, a movie download service, a video iPod, a tablet computer, and more.
None of that occured.
That was why the stock took a big initial hil.
Not all of those products have materialized even now. What he is saying is that they have re-set their expectations to be a bit more down to earth.
So what am I missing? I thought that Apple 'beat' consensus estimates every quarter in 2006. How does that make for 'unreasonably high' esitmates?
Wu's estimates were unreasonably high.
What's a price target? Didn't he predict $99 already? I thought this meant a share would cost $99 by the end of the year 2006.
No. The price quotes are for 6 months to a year out.
They make their estimates based on value. Sales numbers plus earnings per share based on a P/E of perhaps 25 or so (high, but Apple's P/E is always high, in the last few years, again).
The price the stock actually hits is based on that as well as buyer enthusiasm, which is why the P/E goes to the 40's or higher. Often too high to sustain, unless the company can keep improving it's sales and profits on a significant basis.
When that happens, the stock price is ahead of its actual value, and leaves room for a drop when things don't go in the direction investors are expecting it too?even if the company is doing well.
Wu's estimates were unreasonably high.
I'm not so sure.
I'll be surprised when I see the MacPod. That is, an iPod form factor (but with a full screen), which runs Mac OS X.
I can't wait to see our new tiny OS X friend.
The fact that Apple's consumer devices are also going to be running a slimmed down version of OSX is the coolest news. I hope we see mobile versions of many of our favorite Mac apps. Safari, Mail, iChat, iCal, Address Book, iTunes, iPhoto, Front Row.
I can't wait to see our new tiny OS X friend.
The fact that Apple's consumer devices are also going to be running a slimmed down version of OSX is the coolest news. I hope we see mobile versions of many of our favorite Mac apps. Safari, Mail, iChat, iCal, Address Book, iTunes, iPhoto, Front Row.
I just hope it's true.
We don't know that yet.
Do you think as a "30th" present to the Apple faithful, they would release a super-compact and powerful computing form, like a Blackberry?
It's a hopeless guessing game, isn't it?
Sometimes I get little hints out of Apple, but more often than not, nothing.
Remember the slogan: The Mind of Minolta.?
We need to get into the Mind of Jobs.
It's a hopeless guessing game, isn't it?
Sometimes I get little hints out of Apple, but more often than not, nothing.
Remember the slogan: The Mind of Minolta.?
We need to get into the Mind of Jobs.
I wonder if he even keeps his family updated on what he's doing sometimes...
So what am I missing? I thought that Apple 'beat' consensus estimates every quarter in 2006. How does that make for 'unreasonably high' esitmates?
Exactly. Wu is an idiot, saying that his 2006 estimates were too high, even after Apple BEAT them. If he is saying Apple is fairly valued now, try to guess what that means for one year from now...
I just hope it's true.
We don't know that yet.
Considering that the iTV is supposed to work with a Mac or a PC running iTunes, the iTV must be more than just a video streaming device.
I doubt that Apple would have iTunes running on Windows create all those Front Row-esqe visuals and then stream it to through the iTV.
I'm certain that iTV(running OS X Lite) is creating those visual using data from iTunes.
I wonder if he even keeps his family updated on what he's doing sometimes...
I'm just hoping that he keeps himself updated. Sometimes I wonder.
Considering that the iTV is supposed to work with a Mac or a PC running iTunes, the iTV must be more than just a video streaming device.
I doubt that Apple would have iTunes running on Windows create all those Front Row-esqe visuals and then stream it to through the iTV.
I'm certain that iTV(running OS X Lite) is creating those visual using data from iTunes.
Check out the other thread.
This is where it is now:
http://forums.appleinsider.com/showt...58#post1017258
Do you think as a "30th" present to the Apple faithful, they would release a super-compact and powerful computing form, like a Blackberry?
This just in! The 30th anniversary present to the Apple faithful will be... Windows Vista on every Mac!!! ;-D
15.5 million iPods for the Christmas quarter? They sold 16 million last year if I remember right. I think it will be 18+ million.
I think it was 14.3 million something.