Apple Q3 EPS Predictions Based On Guidance And EPS Trends

For Q2 I predicted based on guidance, revenue and EPS trends that Apple (AAPL) will blow past estimate once more. I was very close on the EPS front, lot closer than analysts. Based on guidance averages I was also very close on the revenue prediction. Here is the same analysis for the next quarter.

Average guidance beats: (click to enlarge)

Using averages, the EPS prediction is $12. Using the trendline, the prediction is $12.40. For revenue, using averages, the prediction is $40 Billion and using the trendline $40.8 Billion.

I have refined my actual EPS trendline method a little for Q3 predictions. I've added some more historic data to try and help make the trend more accurate and I've also looked at quarters and averaged how much above and below the trendline Apple EPS is by quarter. Then I've added that to the trendline number. Back-testing, this would have been spot on for predicting Q2 results.

Here is a chart: (click to enlarge)

For Q3, Apple is on an average -$0.3 from the trendline. The trendline value for Q3 2012 is $14.7. This results in a predicted value for EPS of $14.4. However $14.4 is 65% more than Apple's guidance that kind of guidance beat has not been seen before. The most Apple has been below the trendline is $0.6, which results in a value of $14.1, which is 62% above Apple's guidance. Also a number not seen before.

So far Apple has been growing EPS fairly steadily along this trendline and the trendline is a far better EPS predictor than the % deviation from guidance. So it remains to be seen. Can Apple continue the EPS growth trend? I believe it can even though it means breaking the record for guidance beat. Even if not in Q3, I'm expecting new product launches will bring it back on track later.

If Apple continues this EPS trend, FY 2012 EPS will be $58.

Now, $14/share EPS seems crazy for next quarter and $58 seems even crazier for the whole year. However next quarter we will see the full impact of the new iPad. The new iPad had enough supply to be available to anyone who wanted it and launched in more countries faster than any previous iProduct. In addition to that fact, iPhone sales do not seem to be slowing down and new carriers worldwide will pick up the slack for slowing sales at existing ones, just like they did in Q2. After downbeat iPhone sales from Verizon and AT&T, iPhone sales were expected to soften in Q2. However, China picked up the slack. The iPhone is not yet available on China's largest carrier. Every quarter Apple improves margins on existing products as evidenced from their quarterly reports and this chart (margin generally only drops slightly when new products launch). So margin expansion on the iPhone will continue until the next iPhone launch and will continue on the iPad until the next iPad launch.

For the whole year we just might see the impact of an unknown new product based on rumors swirling. Even if no new products arrive in time to add to FY 2012 earnings, I expect Apple will keep up sales of the iPhone and iPad enough to be close to these predictions.

Revenue is a little harder to predict using this method and I'm working out the kinks on a system to predict Apple revenue based on historic trends and that is coming soon in a follow up article. However, Apple revenue guidance is a little more consistent than EPS guidance, so that revenue prediction model might just work again.

Disclosure: I am long AAPL.