U.S. stocks finished higher on Tuesday, with the benchmark S&P 500 gaining 0.5%, putting it within one-tenth of a percentage point of the record high achieved at the beginning of the month. The narrower Dow Jones Industrial Average (^DJI +0.66%) rose 0.4%, while the technology-heavy Nasdaq Composite Index (^IXIC +1.96%) was up 0.7%.
The most valuable company in the Nasdaq, Apple (AAPL 0.17%) outperformed slightly in the run-up to the release its fiscal third quarter results, with an 0.8% gain, but it's giving back some of those gains in the after-hours session, as analysts and investors appear to be focused on the company's guidance for the current quarter. I think that's a mistake.
First, the numbers for last quarter. The following table summarizes Apple's performance on revenues and earnings per share, both on an absolute basis and relative to Wall Street's expectations:
| Metric |
Actual/Year-on-Year Growth |
Analysts' Consensus Estimate |
|---|---|---|
|
Revenues |
$37.4 billion +6% |
$38.0 billion |
|
Earnings per share |
$1.28 +19.6% |
$1.23 |
Sources: Apple, Thomson Financial Network.
Sure, Apple may have missed with regard to revenues, but if you look at both revenues and earnings per share on an absolute basis, these are respectable numbers for a company of Apple's size. Sales of the iPhone -- Apple's flagship product -- increased 12.7% year on year to 35.2 million, short of analysts' forecast for 35.9 million.
However, investors appear to be mainly disappointed by the guidance for the current quarter. The following table compares Apple guidance against analysts' estimates going into this report:
| Metric |
Apple Guidance/Implied Year-on-Year Growth |
Analysts' Consensus Estimate |
|---|---|---|
|
Revenues |
$37.0 billion-$40.0 billion (1.3%) - 6.8% |
$40.4 billion |
|
Earnings per share* |
$1.23 +4.2% |
$1.34 |
*Author's estimate, based on the midpoint in the guidance range for each input and assuming share count decreases at the same rate as over the past four quarters. Sources: Apple, Thomson Financial Network.
There is nothing dramatic here, although the spread in the guidance range for revenues is wider than usual. Addressing this point, Apple CEO Tim Cook told The Wall Street Journal that this reflects a "lack of visibility," highlighting the uncertain impact of rumors regarding new products on consumers' propensity to upgrade earlier or later and uncertainty linked to growing demand in emerging markets.
All told, I think it's silly to focus on guidance for a single quarter; furthermore, at a forward price-to-earnings multiple of 13.4, there remains a margin of safety in Apple shares, even as they approach their all-time split-adjusted high of $100.82.
