Wall Street raises its Apple estimates, but not high enough

Apple's earnings grew 116% in Q1. So why is the Street is looking for 44% in Q2?

Click to enlarge. Source: Asymco.com

After Apple (AAPL) blew past everybody's expectations on Tuesday, reporting sales up more than 73% and earnings up nearly 116%, analysts up and down Wall Street rushed to revise their spreadsheets and issue new notes to clients. We got our hands on 39 of them -- plus a note from one analyst that his firm (Ticonderoga Securities) had gone out of business.

The biggest changes we saw in the analysts' reports were sharply higher 12-month price targets. Jumps from $500 to $600 a share were common. One analyst (Hudson Square's Daniel Ernst) went all the way to $700.

The analysts also revised their sales and earnings estimates, but not nearly as generously. The consensus for the March quarter, according to Thomson/First Call, is for Apple to earn $9.25 a share on sales of $34.48 billion, annual increases of 44.5% and 40%, respectively.

Earnings growth of 44.5% might sound like a lot for a $417 billion company, but a glance at the chart Horace Dediu posted Friday on Asymco.com puts that number in perspective. You have to go back 10 quarters -- to the depth of the housing bubble meltdown -- to find Apple's earnings growing less than 47% in any particular quarter.

Apparently the Street still views Apple's post-2007 growth spurt -- that is, after the launch of the iPhone -- as a flash in the pan. Over the past five years, including the worst of the downturn, Apple's average growth per annum was more than 60%. The consensus among Wall Street analysts is that over the next five years, that growth will slow to 20%.

For the most plausible explanation I've read for how they figure that, see Dediu's Why Apple is cheap.