Apple, ‘consensus’, ‘expectations’, and analysts’ pants on fire?

Apple reports second quarter 2009 earnings tomorrow and results are likely to show just how much of a racket the investment research industry still is despite all of the much trumpeted changes in the way that Wall Street and London’s littler version, ‘The City‘ mean very little in reality.

Reminds me of something…

Looks like a pile of it, smells like a pile of it.

June guidance for analysts was $0.98 EPS on $7.8 billion of sales. Consensus from analysts stands at $1.16 EPS on $8.18 billlion sales which I think just seems to show that very little has changed in the world of financial analysis. Not because the consensus is so much higher than the guidance, but that both of these numbers seem to represent yet another in a series of carefully understated sets of numbers that a stock market darling can use to WOW the market and thus stimulate trading activity in a stock favoured by institutional and retail investors alike.

It used to be that analysts always rated companies as ‘Buys’. (In March 2001, according to Thomson Financial/First Call, Buy notes outnumbered Sell notes by 92-1 Ref). It seems that whilst that particularly incredible and blunt instrument has gone away, there are other ways of using analysts to get people to trade is in shares.

So what is so bad about analyst expectations being a bit higher than Apple’s guidance in this case? Are analysts trying to talk the comany up? Actually there seems to be a little bit of reverse psychology going on here. Very few people ‘in the know’ expect Apple to hit their guidelines. Very few expect them to meet the anaylst forecasts. Far from missing the numbers by going too low though, Apple has to beat both sets of numbers to continue to spread good news and keep people excited about the stock.

This chart from Silicon Alley Insider shows the reality of an overperforming stock on Wall Street.

Apple guidance ALWAYS beats guidance and consensus forecasts.

Either these BRILLIANT analysts, who get paid reasonably well to to do one thing – analyse stocks – are still playing games to support trading in popular shares, or they are really crap at their jobs?

As this chart shows, since December 2006, Apple’s EPS has topped guidance by an average of 39%. Revenue has been topped by 7% on average. Makes you wonder why although a stock that consistently outperforms the market expectations cannot be bad for trading volume in today’s world.

This highly scientific analysis suggests that EPS will be$1.36 with $8.35 billion revenue.

Please sir, can I have a nice bonus if this is right?  Can I be sacked with a pay off if I am wrong?

IMPORTANT DISCLOSURE: I have an iPhone and apart from the tragic battery life, I really love it – especially now I have the new software that allows me to cut and paste and other basic functions.