Apple iPhone Bulls, Please Keep Quiet
Apple bulls are aggressively talking up fourth-quarter iPhone sales and could take expectations up too high.
Apple's (AAPL) up today in a tough tape and I've got to say, I wish it were down, even though I own the stock.
The upside action is being driven by Wall Street analysts talking up fourth-quarter iPhone 4S sales precisely when I'd like to see expectations as low as humanly possible.
Now, Apple was struck with two fairly serious blows back in October.
The first was the October 5 death of iconic former CEO and product visionary Steve Jobs. The second was the company's disappointing fiscal-fourth quarter (ended in September) earnings report, which was reported on October 18.
Since then, the stock's slumped 7%, resulting in a rare period of underperformance relative to the Nasdaq (^NDX).
Now what went wrong in that quarter?
iPhone sales came in at 17.1 million units, missing consensus expectations by a country mile. The problem came in that analysts severely underestimated the impact of the new iPhone 4S launching in October, rather than June or July as in years past.
So it's simple -- expectations just ran too high.
But now, the stock's rising on increasingly bullish forecasts for December-quarter iPhone 4S sales following AT&T's (T) recent announcement of record smartphone sales. So far, analysts from R.W. Baird, Citi, and UBS have significantly increased their iPhone 4S sales estimates, and in all likelihood, more number bumps are on the way.
Anyone who's spent real time in an Apple Store (see: What Standing On Line at the Apple Store Taught Me About Dell), or merely tried to reserve one online, knows first-hand how fast iPhones have been flying off the shelves.
And as of the time I'm writing this, Apple.com is reporting a one- to two-week shipping time for all iPhone 4S models across all carriers.
So even before the past two days, sales expectations for the iPhone 4S have been running pretty hot, and are at least partially priced into the stock.
Again, Apple just suffered two serious disappointments -- a nasty earnings report following the death of the best CEO and product guy on planet Earth.
It does not need a third in the form of another earnings miss due to iPhone 4S forecasts getting ahead of themselves.
Most Apple bulls are taking solace in Apple's cheap valuation. The stock is trading at just 11 times expected full-year earnings, and lower than that if you play the backing-out-the-cash game as if that cash is some hidden asset the market's not appreciating. Remember, a P/E is only low when the E keeps getting bigger. (see: Reviewing RIM's Dismal Earnings Report, Low P/E Ratios, and the Damage Done)
Now I'm not saying that Apple is heading toward a subterranean valuation similar to that of Research In Motion (RIMM) or Hewlett-Packard (HPQ), but the stock is widely owned with a $360+ billion market cap -- at this point, marginal buyers need something to get excited about!
So let's wrap it up.
One earnings miss can easily be chocked up to expectations running a little too hot. But a second in a row? The market may not shrug that off so easily in an era when Apple longs are already forced to wonder about how well the company can execute on new products post-Steve.
So please, fellow iPhone bulls, shut up. Expectations are high enough already.
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