AAPL analysts: pros' telescopic aim low, blogs' eyeball aim true

Tomorrow Apple will report its financial results for Fiscal Q4 2011. My estimates were published a couple weeks ago. Most savvy AAPL investors already know what to expect thanks to the excellent work of Apple 2.0's Philip Elmer-DeWitt, in compiling and contrasting all estimates made by professional analysts working for the biggest banks, brokerages, and financial research institutions, as well as those made by independent (aka bloggers or "amateurs") AAPL analysts.

PED - Our Apple whisper numbers

These days the gap between these two types of analysts has grown immense. According to Yahoo! Finance, Wall Street analysts are expecting EPS of $7.28 on $29.45b in revenue, on average, while PED's compilation of pros shows an EPS average of $7.31. But the 16 independent bloggers/amateurs he polled are expecting EPS of $9.07 (24% higher than pros) on $33.47b in revenue (a cool $4b higher), on average. For the last few quarterly "smackdowns" pitting bloggers vs. pros, PED's been using a "two billion gap" mantra in his titles, which already seemed preposterous. Well the gap has now widened to $4b and it seems to me this trend will continue.

PED - Wall Street still doesn't understand Apple
PED - Bloggers vs. Pros on Apple's Q3: Yet another $2 billion gap

Most financial websites which provide stocks' forward-looking valuation information do so based on Wall Street's professional analysts data. This means widely quoted forward P/E multiples you'll see in almost every article panning (or even recommending) AAPL as a potential investment, are blindly following the blind. Fortunately we have PED's work and the couple dozen independent analysts trying to get a better sense of AAPL's financial performance, and most importantly, sharing and publishing the results.

FY2008: Q2, Q3, Q4
FY2009: Q1, Q2, Q3, Q4
FY2010: Q1, Q2, Q3, Q4
FY2011: Q1, Q2, Q3

Which analysts are the biggest sandbaggers - charted

Over the past year or so I've been tracking all of us analyst performance in forecasting Apple's financial metrics, and ranking us based on the 6 or 7 categories of estimates compiled by Fortune's Apple 2.0 blogger Philip Elmer-DeWitt, and the outcome has always been a consistent underperformance by pros (see here, here, here and here). The comparison and friendly "competition" has almost become laughable, if it weren't for the serious amount of capital that these "professional" analysts look over, and thus the effect of their cluelessness on Apple's share price gets felt.

However, all this time I've been applying a somewhat forgiving methodology on my rankings. By averaging out all the categories with equal weights, the resulting score improperly reflects the relative importance and sensitivity on the stock price of these variables. It should be clear to all investors that forecasting earnings and revenue is most critical, while the number of iPods sold has very little effect (for quite a few years now) on Apple's financial performance. Yet by applying the same weight to these, the effect of the most important metrics gets watered-down by the less important ones so the analyst scores and thus the rankings do not reflect what investors should be focusing on out of all the stuff analysts throw out there.

Bloggers vs. Pros Earnings Smack-down

Later this afternoon is Apple's earnings day. This is when all of us analysts earn our salary (haha sarcasm). To me, it's very important to keep track of my accuracy compared to other analysts not because I need to earn a salary, but because I simply need to get my modeling relatively right for my investment objectives to work.

So as I'm sure you know, PED does this earnings smack-down thing, pitting professional analysts against bloggers. Think of WWE, but better (without the predetermined outcomes). Lol ok, it's not nearly as exciting or entertaining, but it's as close as it will ever get in the investment analyst world. It's been a couple of years now, and it's been really fun. Thanks PED.

The Street awaits Apple's Q3 earnings

Go there and see the awesome table PED's meticulously crafted. I thought I'd try to get the revenue and EPS columns in some kind of visual form. So I went and calculated standard scores on everyone for revenue and EPS and ranked them all on the combined score. Then try to chart it, highlighting and contrasting the pro/blogger dimension. I came up with this (click to enlarge):

I decided to highlight the 3 most bullish and bearish professional analysts, and one of each extreme for the bloggers, as well as the mean for each group. I also highlighted Munster (because his EPS is so out of whack and I wanted to show that) since his combined score represents the median analyst (that is, if his revenue and EPS estimates actually cohered with the mid point of those two extremes). Oh, and myself, uh, because this is my blog.

If you ask me, this looks ugly. Ha. I don't know if I could've enlightened the data in a different way, but to me it's not a nice visualization of it. I couldn't think of anything else and the report is almost here, so there you have it.

Here's the raw data for the chart:

Analyst (ranked from most                     ----- z-scores ----
bearish to most bullish)                        Rev    EPS   Comb
--------------------------------------------  -----  -----  -----
1  Ben Reitzes, Barclay's Capital             -1.31  -1.13  -1.22
2  Mathew Hoffman, Cowen & Co.                -1.13  -1.09  -1.11
3  Tavis McCourt, Morgan Keegan               -0.80  -1.28  -1.04
4  Keith Bachman, BMO Capital                 -1.31  -0.76  -1.04
5  Shaw Wu, Kauffman Bros.                    -1.31  -0.73  -1.02
6  Toni Sacconaghi, Bernstein Research        -0.93  -0.91  -0.92
7  Doug Reid, Stifel Nicholaus                -0.91  -0.80  -0.86
8  Kathryn Huberty, Morgan Stanley            -0.58  -1.06  -0.82
9  Ralph Schackart, William Blair             -0.64  -0.76  -0.70
10  Brian Marshall, Gleacher & Co.            -1.13  -0.21  -0.67
11  Mark Moskowitz, J.P. Morgan               -0.57  -0.69  -0.63
12  William Fearnley, Janney Capital          -0.47  -0.54  -0.51
12.3  Professionals                           -0.42  -0.47  -0.45
13  Ashok Kumar, Rodman & Renshaw             -0.04  -0.65  -0.35
14  Richard Gardner, Citigroup                -0.04  -0.36  -0.20
15  Rajesh Ghai, Think Equity                  0.29  -0.65  -0.18
16  Chris Whitmore, Deutsche Bank              0.07  -0.36  -0.15
17  Gene Munster, Piper Jaffray                0.87  -1.13  -0.13
18  Nehal Chokshi, Technology Insights         0.18  -0.43  -0.13
19  Mike Abramsky, RBC Capital                 0.14  -0.36  -0.11
20  Vijay Rakesh, Sterne Agee                 -0.80   0.63  -0.08
21  Turley Muller, Financial Alchemist         0.05   0.19   0.12
22  Scott Craig, Merrill Lynch                 0.00   0.45   0.22
23  Jeff Fidacaro, Susquehanna                -0.24   1.26   0.51
24  Dennis Hildebrand, Apple's Gold           -0.08   1.18   0.55
25  Yair Reiner, Oppenheimer                   1.12   0.08   0.60
26  Andy Zaky, Bullish Cross                   0.36   1.15   0.75
27  Alexis Cabot, Apple Finance Board          0.90   1.23   1.07
27.2  Bloggers                                 1.07   1.21   1.14
28  Daniel Tello, Deagol's AAPL Model          1.14   1.00   1.07
29  Horace Dediu, Asymco                       0.73   1.55   1.14
30  Jeff Fosberg, Apple Finance Board          1.67   1.63   1.65
31  Robert Paul Leitao, Apple Finance Board    2.38   1.51   1.95
32  Nicolae Mihalache, Trader's Neighborhood   2.37   2.07   2.22

Good luck to everyone!