Apple's (AAPL) Q3 Earnings Preview: Aiming for a Better Reception

Ahead of their third quarter earnings results, expected out after the market closes on July 20, 2010, shares of Apple (Nasdaq: AAPL) are trading about 2.2% lower to $244.34.

Apple is expected to report an EPS of $3.06 on revs of $14.58 billion. Last quarter, AAPL posted an EPS of $3.33 and revs of $13.5 billion, smashing analyst estimates. For Q309, AAPL reported an EPS of $1.19 and revs of $7.46 billion, both topping views.

Shares of Apple have actually gained through the quarter, up 6.6% to close at $251.53 on June 30. Shares are also up 17.5% YTD. (Note: The shares are just about flat since the end of June.) For comparison, the S&P 500 is down 12.5% for the quarter, and also down about 3% to date from January 4...but the S&P also didn't introduce an iPad or the next generation iPhone.

Apple stock has traded in a range of $279.01 to $199.25 over the quarter. The company had a standard deviation of 10.62 and a variance of 112.75 through the quarter. By comparison, Microsoft's (Nasdaq: MSFT) closing prices over the same period had a standard deviation of 2.33 with a variance of 5.45.

Data from Bloomberg has 44 analysts with a Buy rating, 4 with a Hold, and none suggest to Sell. The analyst price target consensus is $332.45, with a high of $390, and a low of $280.

Analyst Ratings Through the Quarter
In early May, Kaufman Bros. increased their price target on AAPL from $315 to $320, while reiterating a Buy rating on the shares. The firm notes that channel checks, in May, indicate better-than-expected Mac and iPad unit sales. The firm increased their price target to $342 following iPhone 4 news in late June.

Sterne Agee initiated coverage on Apple (Nasdaq: AAPL) with a Buy.

S&P Equity Research upgraded Apple (Nasdaq: AAPL) from Buy to Strong Buy with a $300 price target, citing strong iPad sales and resurgence of iMac line as well as a possible new iPod.

Morgan Stanley added Apple to their Best Ideas List, and increased their price target from $275 to $310 on the shares. The firm maintained their Overweight rating on the shares. The firm lifted their price target from $310 to $332 ahead of the iPhone 4 launch.

In late May, Bank of America/Merril Lynch boosted their price target from $300 to $325 while maintaining a Buy rating.

In June, UBS maintained a Buy while raising their price target from $315 to $320.

Broadpoint.AmTech reiterated a 'Buy' rating on with a price target increased from $320 to $340.

Piper Jaffray increased their price target from $330 to $348 ahead of the iPhone 4 launch.

In late June, Citi increased their price target from $320 to $330, reiterating a Buy on the shares.

Summary
Apple said that it expects Q3 revs of $13.0 to $13.4 billion and an EPS in the range of $2.28 to $2.39. Investors should know by now to add about 15 to 20% on to that, as Apple always seems to provide famously low guidance.

The company released their iPhone 4 on June 24th, which should add a little bit to this quarter based on pre-orders and selling 1.7 million units in the first three days after release. Additionally, Apple recently said that it sold about three million iPads in 80 days.

The recent iPhone 4 issues aren't going to affect the company's third-quarter earnings, as real issues hadn't been raised until well into July (although reception problems were noticed early on by some consumers).

Additionally, last Friday, CEO Steve Jobs offered a solution to recent antenna issues surrounding their iPhone 4. He is going to five away free cases for all phones, and refunds to those that have already purchased one. The case giveaway will last through the end of September, and the situation will be reevaluated then.

Piper Jaffray & Co. thinks that Apple shares will continue to move higher over the next three months based on momentum with Mac, iPad, and iPhone sales. Piper also notes that they expect Apple to report earnings above June consensus estimates. They note that over the last 16 quarter, Apple has guided EPS 12% below Street expectations and revs 3% below expectations. They see about 3.2 million iPads selling through the quarter, an upside to their original estimate for 900K to fly off the shelves. Piper also believes that Apple sold about 9.5 million iPhones through the quarter, compared with the consensus for 8.7 million, though uncertainty is added through channel drain/fill dynamics. Piper maintains their Overweight rating on the shares with a price target of $351.

Janney sees AAPL reporting an EPS of $3.15 for the quarter. They see 7.4 million iPad's selling in FY10, up from 6.5 million prior. For FY10, Janney has 36.7 million iPhone units selling, up from 36.2 million. The firm maintains their Buy rating on Apple, and increased their fair value estimate from $320 to $330, which is above peer group metrics based on positive revenue and earnings growth prospects.

Rodman & Renshaw, last Friday, put out a note saying that they "expect mixed results and outlook."

Apple, Inc. is expected to release their Q310 earnings on Tuesday, July 20, 2010, at approximately 4:00pm EDT. Stay tuned to StreetInsider.com's Earnings section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

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