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Friday, December 16, 2011, 09:05 am PT (12:05 pm ET)

Analysis: Fiscal Q1 2012 to be Apple's biggest earnings blowout in history



Dediu has put together an expectation that is very much in-line with the Bullish Cross "high-point" forecast for Apple. Our "high-point" forecast is an expectation we put out every quarter that takes into account the possibility that Apple could deliver a perfect quarter. Notice that Apple has delivered a report that was in-line or slightly above the Bullish Cross high-point estimate twice in the past two years. Once in fiscal Q2 2010 and again in fiscal Q3 2011. Both times it resulted in Apple gapping up uncontrollably after being unhalted in after-hours. The table below outlines the Bullish Cross High-Point Outlook:

Zaky 2


This expectation outlined by Dediu, if proven accurate, will result in an unimaginable blowout of epic proportions. We're talking about a top-line beat of nearly $7 billion with iPhone sales blowing out estimates by over 10.7 million units or nearly 50 percent. The most Apple has beaten the consensus on iPhones in any previous quarter has been by only a few million units or about 20 percent. That's at the high end. Here we're talking something completely unseen before on Wall Street. Missing iPhone units by 50 percent will force the street to go back to the drawing board and re-evaluate everything they thought they knew about the company.

The Dediu outlook is calling for Apple to report $12.30 in EPS on $44.6 billion in revenue on the back of sales of 35.7 million iPhones, 14.7 million iPads and 5.2 million Macs. Dediu is expecting iPhone sales to grow 120 percent leading to a 91 percent increase in earnings per share.

If this outlook by Dediu comes to pass, it will lead to the biggest gap-up in the history of the company. In fact, I think such a report will lead to at least a 10 percent gap-up in the stock if not more. What I would expect to see is Apple halted at least 10 minutes before the results are released and once Apple resumes trading, we should see the stock $50.00 higher. If Apple is trading around $400 when it reports its results, it will gap-up to $450. If it's trading at around $430 a share when it repots, it will test $500 that week.

This is a once in a decade type earnings reaction that we've seen happen a few times with Google. Haven't really seen that type of an earnings reaction out of Apple yet. And that's mostly because Apple typically runs into the results.

Moreover, Apple tends to almost always sell-off after reporting earnings in fiscal Q1 as the stock tends to rally significantly between September and January. Here, Apple has been trading sideways since July. So there hasn't been much of a run-up in the stock price.

Thus, the type of reaction that we will get this quarter will largely depend on the type of pre-earnings run-up we see in the stock. If the bearish sentiment and trading action continues up until the day Apple reports earnings and we get a Horace Dediu blowout, Apple's going up $50.00.

Again, this type of a blowout expected by Dediu is a once in a decade type earnings blowout and we'll observe a corresponding once in a decade type response in the stock price. Yet it is important remember that Dediu is presenting what is the equivalent of our high-point outlook. If everything goes perfectly, we will see his expectations come to fruition.

But if the Bullish Cross "official" outlook is to be viewed as the lower boundary, then the Horace Dediu outlook forms the upper boundary. You should expect Apple to report between those two outlooks. And when it does, it will be a record blowout regardless. Our lower boundary is already calling for a record revenue and earnings blowout out of Apple.

For those who are interested in the events and reasons leading up to this eventual blowout, we basically explain how it came to this in two articles entitled, Why Apple's Guidance is Still Conservative and How to Properly use Apple's Guidance to Accurately Forecast Earnings.

Andy M. Zaky is a fund manager at Bullish Cross Capital and the editor of the Bullish Cross Financial Newsletter. Bullish Cross Capital owns a significant long position in Apple, Inc.