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Why I'm Predicting an Apple Earnings Blowout

By Tim Beyers – Jan 16, 2013 at 1:45PM

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The iPad Mini is a bigger catalyst than Wall Street thinks.

For a small device, the iPad Mini sure looks like a big catalyst.

Early reports said Apple (AAPL 0.70%) would order 10 million of the tablets for the holiday quarter. Now, according to Citi, it looks like close to all of them sold, while first-quarter projections call for another 12 million to 14 million Minis to make their way into the channel.

Has anyone actually stopped to consider what this means? The more profitable Mini gives Apple its best shot at maintaining premium profits at a time when tablet rivals and Google (GOOGL 2.16%) have sharply cut prices on similarly sized models.

Indeed, the lowest-priced Mini will cost you $329 while the Kindle Fire HD and Nexus 7 tablets remain at $199 apiece. Apple is asking shoppers to pay a 65% premium -- which they are, gladly.

You can put me in that group. Santa brought me a Mini that I've already used far more than the now-defunct Galaxy Tab I got at Google's I/O developer conference two years ago. Why? Portability doesn't result in a functional downgrade. If anything, the Mini and its wide selection of apps for consuming books, TV, movies, and radio make it the best entertainment device I own.

Millions of consumers agree. By my math, the Mini probably brought in $2.2 billion in operating profit in fiscal Q1, equal to 12.7% of the $17.3 billion Apple took in last year at this time. The Mac maker sold 15.4 million iPads in 2012's fiscal first quarter. This year's Q1 could see at least 20 million sold, thanks in no small part to the Mini's popularity.

All of which raises two questions: How is it Apple is only rallying 3% today? And why aren't price targets inching upwards when concerns over gross margin appear to be overblown?

Momentum seems to be the issue. Investors have a way of souring on a stock for months at a time, only to revisit the business after an earnings blowout, which is exactly what I'm predicting for Apple. No less than a 10% beat on earnings, billions more in cash flow, and a slight dividend increase heading into the rest of the fiscal year. Think I'm right? Wrong? Please weigh in using the comments box below.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple and Google at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Google, Apple, and Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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