Analyst: Apple's New Guidance Scary but Good

Apple's executive team said the company is abandoning the under-promise-over-deliver style financial guidance that it's know for and instead will be offering what they say will be more realistic guidance for investors and analysts. That change will leave at least some analysts worried, but in the end will be a good thing for the company and everyone that follows its stock, according to Wells Fargo analyst Maynard Um.

Apple's new financial guidance has some investors worriedApple's new financial guidance has some investors worried

"Apple's decision to change the way it provides guidance appears to be sparking fears that the new ranges offered by management may mean the end of material upside to guidance," Mr. Um said. "While this may create uncertainty through next earnings, we see the resetting of Street estimates as positive."

The company is also changing how it reports numbers in a way that's expected to offer better transparency for ASP figures. Analysts will be watching closely to see if the new system offers better insight into quarterly product sales numbers, parts supply issues, and whether or not lower numbers are due to lack of customer interest.

Apple posted record breaking first quarter revenue at $54.5 billion with a $13.1 billion profit. More that 75 million iOS devices were sold during the quarter with 47.8 million being iPhones and 22.9 million made up from iPads. Mac sales came in at 4.1 million units.

Analysts have been questioning below estimate Mac and iPhone sales, and apparently investors have been, too, since Apple's stock dipped dramatically in after hours trading following the company's first fiscal quarter earnings report Wednesday evening. After closing at US$514.01 on Wednesday, Apple's stock dropped more than $50 and hasn't recovered yet.

Despite the selloff, Mr. Um expects Apple's stock will do fine.

"We maintain our belief that the toughest year-over-year compares will start to ease in the back half and that greater economies of scale (given our expectations for similarities between iPhone 5 and next gen iPhone) will drive gross margin improvement as well earnings re-acceleration," he said. "While this may manifest itself more in fiscal year 2014 estimates, we believe anticipation of the acceleration vis a vis supply chain orders should start to improve sentiment into the summer."

Mr. Um is lowering his fiscal 2013 revenue estimate for Apple from $182.1 billion down to $178.5 billion. His new EPS estimate is at $44.51, down from $47.37 based on lower Mac, iPhone and iPad sales estimates.

His total Mac sales for the year are 17.7 million units, down from 19.7 million. iPhone sales estimates are down from 161.5 million to 155 million, and iPad estimates are down from 72.8 million units to 70.2 million.

Mr. Um is maintaining his "Outperform" rating for Apple's stock, but lowered his target price range from $680-$730 to $600-$630. Apple is currently trading in the pre-market at $462.22, down $51.79 (10.07%).