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Apple: Don't Let the Cheap Valuation Fool You, It Has to Smash Estimates Today


Apple reports its fiscal first-quarter results after the closing bell today, and expectations are running high.

Today after the close, in what is easily the most anticipated earnings release of the year thus far, Apple (AAPL) will deliver its fiscal first-quarter results -- numbers which could have a profound impact on the market.

Let me get right to the point.

Expectations for Apple are running high because of the seemingly non-stop stream of bullish anecdotes from key members of the smartphone and PC industries.

For your viewing pleasure, I've assembled a timeline of recent Apple-related events:

November 3, 2011: Qualcomm (QCOM), a key supplier for the iPhone 4S, delivered impressive third-quarter numbers, and huge guidance for the fourth quarter and 2012. (See Qualcomm Erases Fears of a Smartphone Slowdown.)

November 25, 2011: For Black Friday, Apple keeps with its usual 8 to 10% discounts on major products (see Apple Store Rolls Out the Black Friday Deals), indicating that the company felt zero need to follow the industry practice of sacrificing margins to goose sales.

December 7, 2011: Key iPhone reseller AT&T (T) says that it expects the fourth-quarter to be its best single quarter ever for smartphone sales. In fact, AT&T had nearly broken its prior record before December even began. That's huge because AT&T will sell a ton of smartphones this month as well.

December 12, 2011: Within an overall stinky quarter (see Best Buy: Weak Sales, Weak Margins, More Buybacks!), Best Buy (BBY) specifically highlighted the Apple iPhone 4S and iPad as strong sellers.
December 14, 2011: Broadcom (BRCM), which counts Apple as a top customer, came out and said its fourth-quarter revenues and gross margins were tracking to the high end of its guidance.

January 12, 2012: Gartner said that Apple's fourth-quarter PC unit sales grew by a whopping 20.7% in the US, while the rest of the industry declined by 8.6%. (See: This Is the Bad News Microsoft Was Telegraphing)

So while Wall Street is looking for a profit of $10.08 per share on $38.85 billion in revenue, it's safe to say that investors are looking for something more than merely "in-line." In fact, the crowdsourcing earnings-estimate site reports a crowd consensus of $10.39 per share in earnings, which is equal to about a 3% beat relative to consensus.

Apple bulls love to point to the rock-bottom valuation, but remember this: No other stock is as widely owned and loved as Apple. To get marginal dollars into a stock with a $394 billion market cap, big, big numbers are required.

And as far as what could happen if Apple misses, don't count on the valuation as some kind of cushion. Remember, last quarter was a disappointment. Two in a row, coupled with latent anxiety over a future without Steve Jobs, could definitely put a hit on the stock.

I'm an Apple bull for the long-run, but even I have to admit that I'm a little nervous heading into today's report.

From a bigger-picture perspective, Apple could most definitely determine the near-term direction for the broader markets.

Remember, we've seen a strong rotation into the so-called "risk-on" trade year-to-date. The Nasdaq (^IXIC) and Financials (XLF) are up 6% and 9% respectively, while Utilities (XLU) are off 4%. And what trade do I keep hearing about? Shorting US Treasuries by going long the (TBT).

So yes, risk is most definitely on for now, but Apple has a lot of psychological importance to the markets, and a weaker-than-expected, or merely in-line report could sour the mood for the broader markets in a jiffy.

Twitter: @MichaelComeau

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Position in AAPL,QCOM
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