Save the Date? Apple’s Q3 Earnings

by James Brumley | July 10, 2012 11:29 am

Mark July 24, 2012, on your calendar — 5 p.m. EST, to be specific. That’s when Apple (NASDAQ:AAPL[1]) will unveil its Q3 earnings numbers.

Considering it’s the king of cool consumer technology — not to mention one of the world’s biggest corporations — all eyes will be on Apple. Yours should be too, though perhaps for a slightly different reason than mere curiosity.

Betting on an earnings “beat” isn’t really much of a bet; Apple has topped estimates in 13 of the past 14 quarters, only falling short in Q4 2011 (reported on Oct. 18 of last year) by posting a per-share profit of $7.05 rather than the projected $7.39. The questions traders might want to ask are …

  1. By how much is Apple apt to beat estimates?
  2. What’s going to happen to AAPL stock if and when it does?

A look back at prior earnings numbers and the market’s response might well tell the (unhelpful) tale.

Throwing Darts

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Apple’s massive earnings growth with the iPhone and more recently with the iPad — on top of Apple being, well, Apple — one would think some strong earnings news and a solid earnings beat would be all that’s needed to continue spurting the incredible rally AAPL has been doling out since 2010.

One might be wrong in thinking so, however.

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Oh, in the grand scheme of things it’s tough to say a tripling in the stock’s price doesn’t make sense given the tripling in the company’s income during that stretch. It hasn’t been smooth sailing the whole time, though. In fact, Apple shares have been just as apt to stumble after “good” earnings as they have been to rally. The most bullish legs of the long-term rally actually have materialized a couple of months before earnings were announced. This was especially clear in late 2010 and early 2012.

Of course, even the post-earnings slumps didn’t linger forever.

Point being, if you’re waiting to “play” Apple until after third-quarter’s numbers are released, that might be a mistake. At the very best, the odds favor a post-news lull, but more than anything, there’s no discernible or meaningful typical response to Apple’s earnings at all … good or bad. The time to make any earnings-based bet is before the 24th.

All that being said …

What to Expect

Apple’s iPhones have been ridiculously hot sellers[2], and still are. The same goes for the newer iPad tablet. Between the two, Apple has decisively soared into record profit levels in the past two quarters. The company earned $13.87 per share[3] in what effectively was the fourth quarter of 2011, then earned $12.30 per share[4] in what basically was the first quarter of this year … generally a dead, post-Christmas-shopping time of year. Prior to those two quarters, per-share earnings were impressive if they were in the $7 area.

The hot streak should have continued into the company’s third quarter. Analysts are guessing the company will say it earned $10.34 per share when results are posted at the end of the month. Just bear in mind that’s roughly the profit estimates for the prior two quarters — both of which Apple blew out of the water. For Apple to “only” earn $10.34 for the past quarter, it would have needed a serious slowdown in sales.

Anything’s possible, but that doesn’t mean it’s likely.

(The argument against Apple posting another monster quarter is rooted in the “already have one” theory. The idea is that anybody who was going to buy an iPad already bought one, and has no need for another one. It’s not a crazy idea. It just doesn’t fully respect the reality that there are nearly 7 billion people in the world. Apple only sells an estimated 15 million to 20 million of them per quarter now, and they’ve only been on the market for a couple of years. Translation: There’s still room for sales to accelerate rather than decelerate.)

Bottom Line

If AAPL shares continue to rally all the way up through July 24, that might not leave much room for any post-announcement rally, even if the news is good. If instead the stock stalls from here and remains stagnant through the 24th, we might see a decent post-earnings surge.

Either way, long-term owners have been rewarded better than short-term traders have with Apple, as they’ve benefited from a long string of beats rather than worried about outguessing the market from one quarter to the next. Maybe that simple move is the smarter one here.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

  1. AAPL:
  2. have been ridiculously hot sellers:
  3. earned $13.87 per share:
  4. earned $12.30 per share:

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