Citigroup Inc. (C)’s Right: Apple Inc. (AAPL) Could Miss Its Own Guidance

Though this is just a roundabout, conservative estimate, it gives credence to Citigroup Inc. (NYSE:C)’s recent bearish note on Apple Inc. (NASDAQ:AAPL) that claimed the company could miss its own revenue estimate.

“Mr. Market’s” nonsense
Even if Apple missed its own guidance, has the long-term thesis for Apple Inc. (NASDAQ:AAPL) really changed? Adjusted for the shorter quarter, year-over-year revenue rose 27% last quarter; Apple Inc. (NASDAQ:AAPL)’s growth story is far from over.

Yes, margins have declined significantly year over year. But any period in which the company launched as many new products as it did at the end of 2012 would of course produce far lower margins. As Tim Cook noted in the Q1 earnings call, “80% of revenue during the quarter came from new products.”

With a lower-margin iPad Mini cutting average selling prices across the iPad lineup, Apple Inc. (NASDAQ:AAPL) probably won’t return to gross margins in the high 40s. But there isn’t yet any reason for analysts to estimate margins below Apple Inc. (NASDAQ:AAPL)’s guidance of about 38%.

iPad Mini. Source: Apple.

Furthermore, the smartphone and tablet markets are still growing at astonishing rates. ABI projects that smartphone and tablet sales will increase 44% and 125%, respectively, in 2013. This industry growth should support enough further upward momentum in Apple Inc. (NASDAQ:AAPL)’s largest segments to give 2013 EPS a boost over 2012 levels.

Zooming out
In Q1, Apple Inc. (NASDAQ:AAPL)’s unit iPad sales increased by a whopping 48%, year over year. Though this increase undoubtedly resulted from the successful launch of the iPad Mini, it also speaks to the success of Apple Inc. (NASDAQ:AAPL)’s iPad line as a whole. With a rumored refresh of the full-sized iPad due in April, which will almost certainly feature a significant casing redesign, Apple Inc. (NASDAQ:AAPL)’s Q3 guidance is likely to be very strong.

Revenue miss or not, Apple’s still looking great at 10 times earnings.

The article Citi’s Right: Apple Could Miss Its Own Guidance originally appeared on Fool.com and is written by Daniel Sparks.

Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Apple and owns shares of Apple and Citigroup Inc (NYSE:C) .

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