Forward 4-Qtr Estimate Has Fallen Slightly While Apple’s Numbers Have Risen

Apple may throw a life vest to the beleaguered Technology sector this week, with their fiscal Q4 ’18 financial results release after the bell on November 1, ’18.

To keep tonight’s post short and sweet, here is how Apple’s EPS and revenue estimates have trended the last 6 – 9 months:

FC – AppleSep18

The data had to be presented this way to show the reader the complete picture.

With the April ’19 earnings release for Apple, note the acceleration in fiscal ’19’s revenue and EPS growth estimates.

That is the key right there: expected 2019’s EPS growth for Apple jumped from mid-single-digits to now mid-teens last Spring and has remained elevated. Even fiscal 2020 is trending higher.

This doesn’t mean that the stock can’t disappoint or guidance won’t be an issue, BUT my experience is with revisions like this, it usually portends well for the stock after earnings.

The forward 4-qtr estimate trend: 

  • 10/26/18: +21.91%
  • 10/19/18: +21.96%
  • 10/12/18: +22.32%
  • 10/5/18: +22.37%
  • 9/28/18: +22.60%
  • 9/21/18: +22.92%

The last 6 weeks has seen the “forward 4-quarter estimate” decline by 100 bp’s or 1%. That amounts to about 2% per quarter, which isn’t a bad erosion rate.

SP 500 EPS growth has been expected to slow to 10% in 2019 as we lap the tax cuts. That won’t be a surprise.

Summary / conclusion: Apple was sold from all tax-deferred accounts (and some taxable accounts) in the Spring of 2018, around $160 per share. My worry was the price of an iPhone mearing $1,000 which goes against the Technology pricing curve or Moore’s Law or however you want to talk about, but after the late April ’18 earnings report, the forward estimates started to climb again, and thus the stock was sold too early for clients. However, to be upfront, Rupal J. Bhansali of Ariel Investments, John Rogers firm here in Chicago, and used Apple as an example of what they call a “consumer product” stock where the consensus view was entirely known and seemingly discounted in the share price.

That’s the thing about Apple – what isn’t entirely known and public about the company by the 45-odd analysts that follow Apple ? We know about the growing services business, we know well the hardware businesses, we know well the “emerging business” i.e. Pay, TV, Watch, the potential for data gathering for healthcare, etc. Sp what’s new ?

And the fact is Im not knocking Apple: it speaks to their pricing power and the power of that brand that they can execute like this iPhone transition to iPhone transition and never miss beat.

It is amazing.  Mr. Buffett has said in a CNBC interview that the iPhone is “incredibly underpriced” which turns the Tech hardware evolution on its ear.

The only thing I can think of come Thursday that might be a surprise would be an issue with China and tariffs, although this is well known publicly, and it hasn’t stopped the earnings revisions.

Regarding the “forward 4-qtr” estimate trend, LizAnn Sonders, Schwab’s Investment Strategist had a quick back and forth on Twitter on forward earnings revisions, and I don’t think they have been that bad.

As readers can see, the SP 500 peaked in late September ’18 just as the forward estimate did – coincidence or causality ?

My own opinion, and it could be wrong is that this is just another “average” correction in the SP 500, in others words, I don’t think yet that forward earnings revisions are the cause of the correction. (More on that this weekend.)

The SP 500 earnings yield ended the week at 6.52% – still elevated.

Refinitive IBES (weekly) SP 500 earnings data: 

  • Fwd 4-qtr estimate: $173.24
  • PE ratio: 15.3x
  • PEG ratio: 0.70x
  • SP 500 earnings yield: 6.52% vs last weeks 6.27%
  • Year-over-year growth of forward estimate: +21.91%

Please accept my apologies for some of the terrible writing and math mistakes this week on this blog. I took a few days off at the end of the week to stop the poor work.

Hopefully tonight’s blog is better.

Thanks for reading.

2 Responses to “Forward 4-Qtr Estimate Has Fallen Slightly While Apple’s Numbers Have Risen”

  1. Mark Russell

    Hi Brian,

    Another great post with solid “fundamentals”..


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