* Analysts see long-term catalysts for stock
* Positive sentiment on tablet, but pricing key
* SmartEstimates show EPS, revenue upside surprise
By Gabriel Madway
SAN FRANCISCO, Jan 21 Few events can steal the
thunder from an Apple Inc (AAPL.O) quarterly earnings day -- an
Apple product launch is one of them.
The company releases quarterly results on Monday, but Wall
Street is waiting for Wednesday, when Apple could unveil a new
tablet computer that investors hope will be as huge a
phenomenon as its iconic iPod and iPhone.
The week could provide a pair of long-term catalysts for
Apple's stock. But the company's shares often sell off right
after major launches after months of rumor fuel big
Little is known about the device, despite a rabid fan
following speculating on everything from the component makers
to its shape and form. Industry watchers are bullish. They say
Apple's obsession to detail gives the so-called "iSlate" a big
edge in a computer category that had been deemed a failure.
"If Apple is going to design a product, then it's going to
be the best design in the marketplace," said Broadpoint Amtech
analyst Brian Marshall. "To bet that it's going to be a flop is
a bad bet."
Most analysts have not factored the tablet into estimates
for fiscal 2010, but sell-siders have been busy lifting price
targets on Apple's stock in the past month.
To be sure, Apple is setting itself quite a task, one that
has frustrated previous attempts: to sell consumers on the
value of a device that sits somewhere between a full-sized
laptop and a pocket cellphone.
The device is hyped as a do-everything, go-everywhere
touchscreen media gadget that bridges the gap between
smartphones, laptops and electronic readers. Magazine, book and
newspaper publishers are reportedly talking with Apple about
"There's a huge potential long-term story there for Apple,"
said Atlantic Equities analyst James Cordwell. "Whether they
get it right the first time, we'll have to wait and see, but
they have a pretty good track record."
IF THE PRICE IS RIGHT
Wall Street will pay particular attention to the tablet's
price tag. If it is closer to $1,000 than $600, analysts say it
will be tougher to convince consumers to buy.
Apple could offer it under carrier-subsidized plans --
Verizon Wireless is frequently mentioned -- which might help
take the bite out of the purchase price.
Analysts believe Apple will sell 2 million to 5 million
tablets in the first year.
The device could add $1 per share to Apple's non-GAAP
earnings in the year, and generate $2.8 billion to $3.5 billion
of revenue, with a $700 average selling price, said Cross
research analyst Shannon Cross.
Its Monday earnings run-down will serve as a warm-up for
the tablet launch. Strong iPhone sales and continued momentum
from its Mac computers should fuel the results.
Given Apple's recent tradition of shredding Wall Street's
estimates, investors will expect nothing less than a strong
beat when it reports fiscal first-quarter results. The company
is trading at around 27 times forward earnings.
Apple has bested Wall Street EPS targets by at least 15
percent in the past four quarters, and analyst sentiment on the
company is trending upward, according to data complied by
Thomson Reuters StarMine.
According to StarMine's SmartEstimate, which places more
weight on recent forecasts by top-rated analysts, Apple should
post EPS of $2.11 a share on revenue of $12.16 billion
"It really boils down to one point, is their beat big
enough?" said Jessup & Lamont analyst Kevin Dede. "If you're
long, just ride this one out, but if you're a hedge fund, maybe
you want to think twice."
Apple's shares have risen around 9 percent since
mid-December when hype about the tablet quickened, and are
trading a few dollars shy of an all-time high. It is now the
fourth largest stock on the S&P500 index, outranking the likes
of IBM (IBM.N) and JPMorgan Chase (JPM.N).
Some investors will be reluctant to sell shares ahead of
the tablet unveiling two days later, Dede said.
Apple is expected to report earnings of $2.06 a share on
revenue of $12.05 billion, according to Thomson Reuters
I/B/E/S, with a gross margin of 35.7 percent.
Marshall, whose estimates are well above consensus, expects
Apple to deliver a strong upside surprise.
"The beat is going to be significant enough that we'll have
a material earnings revisions for calendar year 2010," Marshall
The iPhone should provide a boost for Apple in the holiday
quarter, particularly internationally, he said. Marshal
predicted that iPhone units sold will surpass the 9 million
Analysts target Mac shipments of around 3 million for the
quarter. Mac shipments in the United States jumped 31 percent
in the quarter, according to research group IDC.
(Reporting by Gabriel Madway. Editing by Edwin Chan and Robert