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Tuesday, July 19, 2011

Why No One Should Believe Apple's Earnings Guidance?

Why No One Should Believe Apple's Earnings Guidance?

"Ultimately, Apple’s tendency to low-ball its guidance and analysts’ willingness to play along with the charade tends to harm shareholders who are left with an inaccurate picture of the company’s true financial standing and a stock that may be leaving value on the table. 


‘Mutual Self-Deception’
In any case, it’s hard to place all the blame on Apple as it’s clear the analyst community has gone along with the game. Rather than sharply ratcheting up their EPS and sales projections to account for the fact that Apple low-balls its guidance, analysts tend to hike them just moderately. That results in deceptively-low consensus estimates that the markets compare the results with. 
“If analysts accept the low-balled guidance and accept the quarterly results that consistently exceed the estimates, then they’re both playing in a game of mutual self-deception,” said Stevenson, who led the IR and communications departments of Kraft (KFT: 35.42, +0.24, +0.68%) and R.J. Reynolds. “The ultimate loser is the investor who can’t count on either one of these two pieces of information.”

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