On December 19th, 2010 I published a post titled Apple: Testing Analyst EPS Estimates With Revenue Forecasts. In that post I demonstrated a fairly easy method to test the relationship between an analyst's revenue and eps estimates.
In Apple's 1st fiscal quarter of FY 2011 (the December quarter) roughly 22.45% of each revenue dollar flowed to the net income line. In this post I'm comparing the March quarter revenue and eps estimates of 14 unaffiliated analysts and 34 Wall Street analysts as published by Philip Elmer-DeWitt at Apple 2.0 to determine each analyst's net income to revenue ratio.
Bloggers Versus The Pros
Each quarter Apple 2.0 publishes analyst estimates and categorizes the estimates based on the affiliation of the analysts on the list - professional Wall Street analysts or unaffiliated analysts such as myself. My March quarter estimates are published in a separate post at Posts At Eventide and are included in the list. There's usually a wide gap in the average revenue and eps estimates between the members of the two groups. The gap in the March quarter estimates between the professional Wall Street analysts and the unaffiliated analysts illustrates this consistent trend. Not only is there a gap in the average revenue and eps estimates, there are also gaps in the estimated percentage of revenue the analysts suggest will flow to Apple's net income line.
Revenue and Net Income Estimates By Analyst
To determine the percentage of revenue each analyst estimates will flow to the net income line, I multiplied the published eps estimates as provided by Apple 2.0 by a constant of 937.5 million shares (an estimate of the number of fully diluted shares in the March quarter) and then divided that outcome by each analyst's revenue estimate that had been rounded to the nearest $100 million.
With the exception of Scott Craig, Andy Hargreaves, Toni Sacconaghi and Mike Abramsky, the Wall Street pros expect Apple's net income to revenue ratio in the March quarter to be below the FQ1 performance. The estimates from Mike Abramsky and Brian Marshall hover around the December quarter's net income to revenue performance along with the estimate from unaffiliated analyst and Apple Finance Board (AFB) member Mark Beauch.
Bloggers Versus The Pros
Each quarter Apple 2.0 publishes analyst estimates and categorizes the estimates based on the affiliation of the analysts on the list - professional Wall Street analysts or unaffiliated analysts such as myself. My March quarter estimates are published in a separate post at Posts At Eventide and are included in the list. There's usually a wide gap in the average revenue and eps estimates between the members of the two groups. The gap in the March quarter estimates between the professional Wall Street analysts and the unaffiliated analysts illustrates this consistent trend. Not only is there a gap in the average revenue and eps estimates, there are also gaps in the estimated percentage of revenue the analysts suggest will flow to Apple's net income line.
Revenue and Net Income Estimates By Analyst
To determine the percentage of revenue each analyst estimates will flow to the net income line, I multiplied the published eps estimates as provided by Apple 2.0 by a constant of 937.5 million shares (an estimate of the number of fully diluted shares in the March quarter) and then divided that outcome by each analyst's revenue estimate that had been rounded to the nearest $100 million.
With the exception of Scott Craig, Andy Hargreaves, Toni Sacconaghi and Mike Abramsky, the Wall Street pros expect Apple's net income to revenue ratio in the March quarter to be below the FQ1 performance. The estimates from Mike Abramsky and Brian Marshall hover around the December quarter's net income to revenue performance along with the estimate from unaffiliated analyst and Apple Finance Board (AFB) member Mark Beauch.
Among the unaffiliated analysts Turley Muller estimates net income to reach about $.2413 of each revenue dollar while bloggers Andy Zaky, Daniel Tello, Robert Paul Leitao and Horace Dediu estimate net income to reach above the $.23 per revenue dollar threshold along with Nicolae Mihalache and AFB members Jeff Fosberg, Alexis Cabot, Luke Kittell, Patrick Smellie, Adam Thompson and Chas McKenna. Please see the table of analyst estimates below the break. The revenue estimates listed are in billions of dollars.
The Impact of Rising Net Income Relative To Revenue
This revenue to net income test suggests there's much more to the lower eps estimates from the Wall Street pros than the generally lower revenue estimates offered by the pros compared to the revenue estimates offered by the unaffiliated analysts. To illustrate the impact of a 1% rise in the amount of revenue that flows to the net income line, at $25 billion in revenue that additional 1% equates to about $.20 more in earnings per share. While most of the Wall Street pros forecast a deterioration in Apple's net income to revenue ratio from the December quarter's performance, all of the unaffiliated analysts see that ratio improving sequentially.
This revenue to net income test suggests there's much more to the lower eps estimates from the Wall Street pros than the generally lower revenue estimates offered by the pros compared to the revenue estimates offered by the unaffiliated analysts. To illustrate the impact of a 1% rise in the amount of revenue that flows to the net income line, at $25 billion in revenue that additional 1% equates to about $.20 more in earnings per share. While most of the Wall Street pros forecast a deterioration in Apple's net income to revenue ratio from the December quarter's performance, all of the unaffiliated analysts see that ratio improving sequentially.
On Wednesday afternoon we'll know which group of analysts came closer to the mark. In the meantime I recommend Daniel Tello's recent blog post that provides a more in-depth review of the estimates offered by all of the analysts listed.
Thank you to Philip Elmer-DeWitt at Apple 2.0 for the analyst numbers.
Robert Paul Leitao
(Post updated 04/19/11 for revised numbers from Horace Dediu and corrections to the published estimated from Shaw Wu)
(Post updated 04/19/11 for revised numbers from Horace Dediu and corrections to the published estimated from Shaw Wu)
| Apple Q2 2011 | Estimated | Estimated | Net Income | Net Income | % Estimate |
| Unaffiliated Analysts | Revenue | EPS | % Estimate | % FQ1 | Versus FQ1 |
| Nicolae Mihalache, Traderhood | 26.20 | 6.67 | 23.87% | 22.45% | 1.414% |
| Luke Kittell, Apple Finance Board | 25.73 | 6.40 | 23.32% | 22.45% | 0.867% |
| Patrick Smellie, Apple Finance Board | 25.72 | 6.35 | 23.15% | 22.45% | 0.693% |
| Chas McKenna, Apple Finance Board | 25.64 | 6.45 | 23.58% | 22.45% | 1.131% |
| Dennis Hildebrand, Apple's Gold | 25.51 | 6.21 | 22.82% | 22.45% | 0.370% |
| Horace Dediu, Asymco | 25.50 | 6.43 | 23.64% | 22.45% | 1.187% |
| Daniel Tello, Deagol's AAPL Model | 25.26 | 6.32 | 23.46% | 22.45% | 1.004% |
| Robert Paul Leitao, Posts At Eventide | 25.26 | 6.30 | 23.38% | 22.45% | 0.929% |
| Adam Thompson, Apple Finance Board | 25.18 | 6.20 | 23.08% | 22.45% | 0.631% |
| Jeff Fosberg, Apple Finance Board | 25.00 | 6.34 | 23.78% | 22.45% | 1.323% |
| Alexis Cabot, Apple Finance Board | 25.00 | 6.26 | 23.48% | 22.45% | 1.023% |
| Turley Muller, Financial Alchemist | 24.79 | 6.38 | 24.13% | 22.45% | 1.675% |
| Andy Zaky, Bullish Cross | 24.73 | 6.20 | 23.50% | 22.45% | 1.051% |
| Mark Beauch, Apple Finance Board | 24.42 | 5.87 | 22.54% | 22.45% | 0.083% |
| Unaffiliated Analysts - Average | 25.28 | 6.31 | | | |
| | | | | | |
| | Estimated | Estimated | Net Income | Net Income | % Estimate |
| Wall Street Analysts | Revenue | EPS | % Estimate | % FQ1 | Versus FQ1 |
| Jeff Fidacaro, Susquehanna | 25.68 | 5.72 | 20.88% | 22.45% | -1.570% |
| Robert Cihra, Caris | 24.52 | 5.76 | 22.02% | 22.45% | -0.430% |
| Matthew Hoffman, Cowen & Co. | 24.51 | 5.43 | 20.77% | 22.45% | -1.683% |
| Mike Abramsky, RBC Capital | 24.01 | 5.75 | 22.45% | 22.45% | -0.001% |
| Tavis McCourt, Morgan Keegan | 23.99 | 5.72 | 22.35% | 22.45% | -0.099% |
| Mark Moskowitz, J.P. Morgan | 23.83 | 5.21 | 20.50% | 22.45% | -1.956% |
| Toni Sacconaghi, Bernstein Research | 23.80 | 5.75 | 22.65% | 22.45% | 0.197% |
| Hendi Susanto, Gabelli & Co. | 23.54 | 5.10 | 20.31% | 22.45% | -2.141% |
| Peter Misek, Jeffries | 23.50 | 5.44 | 21.70% | 22.45% | -0.750% |
| William Power, Baird | 23.43 | 5.38 | 21.53% | 22.45% | -0.926% |
| Charlie Wolf, Needham | 23.41 | 5.11 | 20.46% | 22.45% | -1.988% |
| Shannon Cross, Cross Securities | 23.32 | 5.46 | 21.95% | 22.45% | -0.502% |
| Maynard Um, UBS | 23.28 | 5.44 | 21.91% | 22.45% | -0.545% |
| Shaw Wu, Sterne Agee | 23.28 | 5.42 | 21.83% | 22.45% | -0.626% |
| Brian Marshall, Gleacher & Co. | 23.19 | 5.55 | 22.44% | 22.45% | -0.015% |
| Andy Hargreaves, Pacific Crest | 23.14 | 5.61 | 22.73% | 22.45% | 0.276% |
| Scott Craig, BofA/Merrill Lynch | 23.14 | 5.63 | 22.81% | 22.45% | 0.357% |
| Steven Fox, CLSA | 23.00 | 5.44 | 22.17% | 22.45% | -0.278% |
| T. Michael Walkley, Canaccord Genuity | 23.00 | 5.22 | 21.28% | 22.45% | -1.175% |
| Rajesh Ghai, Think Equity | 22.94 | 5.33 | 21.78% | 22.45% | -0.670% |
| Yair Reiner, Oppenheimer | 22.89 | 5.18 | 21.22% | 22.45% | -1.237% |
| Chris Whitmore, Deutsche Bank | 22.85 | 5.23 | 21.46% | 22.45% | -0.995% |
| Scott Sutherland, Wedbush | 22.82 | 5.05 | 20.75% | 22.45% | -1.706% |
| Brian White, Ticonderoga | 22.75 | 5.13 | 21.14% | 22.45% | -1.312% |
| Ben Reitzes, Barclays Capital | 22.70 | 5.10 | 21.06% | 22.45% | -1.390% |
| Gene Munster, Piper Jaffray | 22.68 | 5.11 | 21.12% | 22.45% | -1.330% |
| Daniel Ernst, Hudson Square | 22.65 | 4.95 | 20.49% | 22.45% | -1.964% |
| Kathryn Huberty, Morgan Stanley | 22.56 | 5.34 | 22.19% | 22.45% | -0.262% |
| Ralph Schackart, William Blair | 22.55 | 5.03 | 20.91% | 22.45% | -1.541% |
| William Fearnley, Janney Capital | 22.22 | 4.99 | 21.05% | 22.45% | -1.399% |
| Keith Bachman, BMO Capital | 22.18 | 5.02 | 21.22% | 22.45% | -1.234% |
| Alex Gauna, JMP Securities | 22.00 | 5.10 | 21.73% | 22.45% | -0.719% |
| Richard Gardner, Citigroup | 22.08 | 5.15 | 21.87% | 22.45% | -0.586% |
| Bill Shope, Goldman Sachs | 21.99 | 4.99 | 21.27% | 22.45% | -1.179% |
| Wall Street Analysts - Average | 23.16 | 5.32 | | | |
Is Wu really 6.43 or is that a typo??
ReplyDeleteThe Shaw Wu numbers re: rev and eps are wrong. Not his numbers. He couldn't get that close on his best day.
ReplyDeleteShaw Wu's numbers are posted as published by Philip Elmer-DeWitt at Apple 2.0. Please see the links in the blog post. Although Mr. Wu's revenue estimate is the highest among all of the analysts polled, his eps outcome is consistent with the net income to revenue ratio of the December quarter.
ReplyDeleteHowever, had my forecasting models delivered a revenue estimate outcome of $26.74 billion (similar to Shaw Wu's) my eps outcome would have been considerably higher and at least $6.67 versus Mr. Wu's eps estimate of $6.43.
PED corrected his. Can you update here as well? Thanks
ReplyDeleteUpdate: The most recent estimate published by Apple 2.0 indicates a change in the estimates for Shaw Wu. I'm confirming if a change in his estimates has been made.
ReplyDeleteHorace changed his in a asymco.com post to 25.5 billion revenue, I believe
ReplyDeleteThe charts have been updated to reflect the revised numbers from Horace Dediu and corrections to the estimates from Shaw Wu.
ReplyDeleteIt looks to me, as of market close on April 21, like 16-17 will be the new 'normal' p/e for Apple. Here's a list of highest and lowest p/e's since Oct. 2009. Notice that for each quarter, p/e tends to peak in either the run-up to earnings or just after earnings.It's hard to imagine what catalysts between now and September would be able to raise it much beyond 18 if yesterday's blowout earnings couldn't do it.Is ther any possibility that the qqq rebalancing is still having an effect?
ReplyDeleteApple P/E:
(eps:9?)
Oct. 22,2009:22.80
Oct. 30,2009:20.94
Jan. 19,2010:23.90
(eps:10.24)
Jan. 27,2010:20.30
Feb. 4,2010:18.75
Apr 15,2010:24.30
(eps:11.78)
Apr. 23,2010:22.99
May 7, 2010:20.02
June 18,2010:23.26
(eps:13.28)
July 27,2010:19.88
Aug 24,2010:18.06
Oct. 18,2010:23.94
(eps:15.15)
Oct. 20,2010:20.50
Nov. 17,2010:19.83
Jan. 14,2011:23.00
(eps:17.92)
Jan 21,2011:18.23
Jan. 26,2011:19.19
Feb. 16,2011:20.26
Apr. 15,2011:18.27
(eps:20.98)
Apr. 21,2011:16.72