Apple Inc. (
is scheduled to release its second quarter 2012 results after the
market closes on Tuesday, April 24, 2012. In the run up to the
earnings results, we notice an upward revision in the analysts'
estimates over the past few days, and considering the past trends
we continue to believe that another earnings beat is on the
Prior Quarter Recap
Apple reported a stellar first quarter of 2012. Apple earned
$13.87 per share in the reported quarter, handily beating the Zacks
Consensus Estimate of $10.07. Earnings per share (
) soared 115.7% from the year-ago level of $6.43 and were also
ahead of Apple's conservative guidance of $9.30.
Apple's first quarter beat was primarily driven by strong
holiday season sales based on the ramp in demand for the new iPhone
4S, which was released in October 2011. Total revenue in the
quarter surged 73.3% year over year to $46.33 billion and beat both
the company's forecast of $37.00 billion and the Zacks Consensus
Estimate of $38.86 billion. The year-over-year upside was driven by
strong growth in iPhone (up 133.0% year over year), iPad (up 99.0%
year over year), and Macintosh (up 22.0% year over year) sales.
For further details please read:
Stellar 1Q for Apple
Current Quarter Expectations
For the current quarter, the Zacks Consensus Estimate is pegged
at $9.99 per share, way ahead of Apple's own conservative guidance
of $8.50 per share. Apple expects to earn revenues of $32.5
billion. The Zacks Consensus Estimate expects Apple's revenues to
be around $36.56 billion.
Apple expects gross margin to be 42.0%, reflecting stock-based
compensation expense of approximately $60.0 million. Operating
expenses are estimated to be $3.05 billion, including about $350.0
million in stock-based compensation, while other income and
expenses are anticipated to be around $125.0 million. The tax rate
is estimated to be about 25.25%.
Estimate Revision Trend
For the current quarter, out of the 33 analysts covering the
stock, 14 analysts raised their estimates and there was just one
negative revision in the last 30 days. As the estimates revision
was positively biased, the Zacks Consensus Estimate increased from
$9.74 to $9.99 over the same period.
We note that Apple has consistently exceeded estimates in the
previous four quarters. The average surprise in the preceding four
quarters is positive 21.97% and we expect another positive earnings
surprise from the company.
The analysts believe that strong sales of iPad 3 (released in
March 2012) would drive results in the quarter. Moreover, they
believe that the tech-giant is expanding its iPhone addressable
market (released in China during the quarter) through additional
wireless carriers in new regions and multiple carriers per country,
which should sustain solid unit growth.
However, the recent sell-off (down approximately 10% in the last
10 days) reflects a growing concern over iPhone's growth trajectory
going forward. Recently,
reported a significant drop in iPhone sales to 3.2 million in the
first quarter from 4.3 million in the sequentially preceding
quarter. As iPhone contributes more than 50% of Apple's sales, a
decline in unit sales will hurt revenue going forward.
Further, some analysts believe that continuing supply chain
constraints, which may result in the shortfall of certain important
component such as LTE chips (used in 4G enabled devices) may hurt
Apple's capability to meet the increasing demand for its iPhone and
iPad, thereby hurting top-line growth going forward.
We believe that Apple will report a strong second quarter based
on higher iPad and iPhone sales. However, we expect some
seasonality in sales, as the first quarter benefited significantly
from strong holiday season sales.
Nonetheless, we believe that Apple remains the biggest growth
story in the technology sector, primarily on account of its
superior product pipeline, Apps, strong iCloud revenues, loyal
customer base and international expansion going forward. Despite
the legal complexities and increasing competition in iPad and
iPhone segments, we are optimistic about the company's growth
prospects in the long term.
We maintain an Outperform rating over the long term (6-12
months). Currently, Apple has a Zacks #1 Rank which translates into
a Strong Buy rating over the short term.
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