The Market's True Earnings Expectations

Apple has a problem most companies would envy: customers want more iPhones and Macs than it can build. The trouble is that this happy problem now comes with real costs. When Apple reports fiscal fourth-quarter results after the close on November 2, the question is whether surging demand can outrun broadening supply constraints and a historic spike in memory prices. Investors have bid the shares up 14.1% since the last report while the S&P 500 gained just 2.1%, so the market has already chosen an answer.

Wall Street expects earnings of $2.00 a share on revenue of $112.95 billion, which would mean growth of roughly 8% on the bottom line and 10% on the top line from a year ago. Those figures sit squarely inside management's guidance for $1.91 to $2.04 a share and $111.69 billion to $113.74 billion in revenue. Revenue consensus lands just above the midpoint, while the EPS estimate leans toward the upper half. Analysts have also trimmed their numbers since guidance came out, having previously sat above the range on revenue. The Earnings Whisper of $2.07, however, sits above both consensus and the top of Apple's own outlook, a sign that the real bar is higher than the published estimates suggest. Notice too that earnings are expected to grow more slowly than sales. That gap is the margin story in miniature.