Apple shares slip, regroup following Morgan Keegan downgrade
Shares of Apple Inc. briefly surrendered most of Monday's gains but then battled back in early afternoon trading after Morgan Keegan downgraded its rating on the company from Market Perform to Underperform, citing weakness in consumer technology spending both stateside and abroad.
Analyst Tavis McCourt said that although his firm is a long-term believer the Apple growth strategy, reductions in consumer spending across the United States and Europe are likely to dampen the company's Mac growth and share price as the year progresses, which should yield a "more attractive entry point" for long-term investors.
Specifically, McCourt zeroed in on Education, where he said state and local budget constraints suggest a slowdown in spending is likely this year, lasting for as long as two years if the previous recession is of any indication.
"During the last economic slowdown, Apple's conference calls were full of commentary around a weak spending environment in the education vertical due to state and local budget constraints," he wrote. " However, higher than expected sales in the education vertical was mentioned as part of the reason for Apple's strong performance last summer and, at the very least, we suspect growth in this vertical will not be as high as 2007, which has its biggest impact on the June and September quarters."
The analyst also highlighted a number of recent reports that suggest a rapid deterioration in technology spending on the part of consumers, such as poor handset sales from Sony Ericsson in Europe, weak handset trends at Sprint, and slower sales of home theaters, MP3 players, and televisions at Best Buy.
"In any event, we believe that growth is likely still robust in Apple's Mac business," he advised clients. "However, with demonstrable slowdowns in MP3 players, PNDs, wireless handsets, LCD TVs, and almost every other consumer technology category we can think of, we believe that PC and Mac growth will slow substantially from the levels exiting 2007."
McCourt also acknowledged Apple shares are disproportionately impacted by ongoing iPhone rumors, but noted that the handset is likely to account for less than 10 percent of the company's total sales for fiscal year 2008. However, he sees Apple emerging as "a significant niche player in the mobile handset space over the long term," and as such has factored the iPhone into his model as becoming a $10 billion+ annual business over the next five years.
"This is no small feat when one considers that [BlackBerry maker] Research In Motion only just surpassed $6 billion in revenues in its most recent fiscal year, despite experiencing substantial success in the consumer market and having much broader distribution than Apple," he noted. "In the near term, however, any weakness in the Mac and/or iPod lines would financially dwarf iPhone successes."
The Morgan Keegan analyst in his report Tuesday outlined three scenarios for Apple shares through fiscal 2008, with the "Realistic" scenario pegging the Cupertino-based company's share price at $133, based on 33 percent Mac growth, 10 percent iPod growth, and a gross margin of 34 percent.
"Our conclusion is that with any decrease in Mac unit growth or gross margins, [per-share earnings] at Apple is negatively impacted," he added. "Given the macroeconomic environment, we believe it is more likely that Mac growth trends slow down throughout the year rather than continue at a 40 percent-ish pace (although we believe March is fine)."
Analyst Tavis McCourt said that although his firm is a long-term believer the Apple growth strategy, reductions in consumer spending across the United States and Europe are likely to dampen the company's Mac growth and share price as the year progresses, which should yield a "more attractive entry point" for long-term investors.
Specifically, McCourt zeroed in on Education, where he said state and local budget constraints suggest a slowdown in spending is likely this year, lasting for as long as two years if the previous recession is of any indication.
"During the last economic slowdown, Apple's conference calls were full of commentary around a weak spending environment in the education vertical due to state and local budget constraints," he wrote. " However, higher than expected sales in the education vertical was mentioned as part of the reason for Apple's strong performance last summer and, at the very least, we suspect growth in this vertical will not be as high as 2007, which has its biggest impact on the June and September quarters."
The analyst also highlighted a number of recent reports that suggest a rapid deterioration in technology spending on the part of consumers, such as poor handset sales from Sony Ericsson in Europe, weak handset trends at Sprint, and slower sales of home theaters, MP3 players, and televisions at Best Buy.
"In any event, we believe that growth is likely still robust in Apple's Mac business," he advised clients. "However, with demonstrable slowdowns in MP3 players, PNDs, wireless handsets, LCD TVs, and almost every other consumer technology category we can think of, we believe that PC and Mac growth will slow substantially from the levels exiting 2007."
McCourt also acknowledged Apple shares are disproportionately impacted by ongoing iPhone rumors, but noted that the handset is likely to account for less than 10 percent of the company's total sales for fiscal year 2008. However, he sees Apple emerging as "a significant niche player in the mobile handset space over the long term," and as such has factored the iPhone into his model as becoming a $10 billion+ annual business over the next five years.
"This is no small feat when one considers that [BlackBerry maker] Research In Motion only just surpassed $6 billion in revenues in its most recent fiscal year, despite experiencing substantial success in the consumer market and having much broader distribution than Apple," he noted. "In the near term, however, any weakness in the Mac and/or iPod lines would financially dwarf iPhone successes."
The Morgan Keegan analyst in his report Tuesday outlined three scenarios for Apple shares through fiscal 2008, with the "Realistic" scenario pegging the Cupertino-based company's share price at $133, based on 33 percent Mac growth, 10 percent iPod growth, and a gross margin of 34 percent.
"Our conclusion is that with any decrease in Mac unit growth or gross margins, [per-share earnings] at Apple is negatively impacted," he added. "Given the macroeconomic environment, we believe it is more likely that Mac growth trends slow down throughout the year rather than continue at a 40 percent-ish pace (although we believe March is fine)."
Comments
Where do you hide the crystal ball?
battled back Tuesday afternoon
Isn't this an oxymoron?
If it's significant, then how can it be niche?
Shares of Apple Inc. briefly surrendered most of yesterday's gains but then battled back Tuesday afternoon after Morgan Keegan downgraded its rating...
"...battled back Tuesday afternoon..." I am reading this story before noon (EST) Tuesday, here on the East Coast and I see it was posted at 11:25 AM EST. Was afternoon a slight oversight or did I miss something (which is entirely possible)?
"...battled back Tuesday afternoon..." I am reading this story before noon (EST) Tuesday, here on the East Coast and I see it was posted at 11:25 AM EST. Was afternoon a slight oversight or did I miss something (which is entirely possible)?
AppleInsider has outsourced their writing staff to India.
Outrageous, irrational statements regarding the stock's fluctuations are totally uncalled for. Is there at least a basic belief in responsible journalism?
You guys can't have it both ways. Don't cry about your people being "hard at work" putting stories together, then expect us to give AI a free pass on featherweight stories.
Please do a better job of reigning in fabulist journos', or at least call in to question the statements of analysts who clearly stand to benefit from the biased opinion pieces they float your way.
However, he sees Apple emerging as "a significant niche player in the mobile handset space over the long term,"
Isn't this an oxymoron?
If it's significant, then how can it be niche?
I suppose you could have a niche player that makes garbage phones and sells to 5 percent of the market that doesn't affect the market as a whole very much. Or, you could have a niche player that has about 5% of the market and generates interest and knockoffs and has a great deal of influence in the market. Both would be "niche players" when compared to Nokia or Erricson, but only one would be significant.
It may be an oxymoron--the terms do appear to contradict--but that does not mean that it is invalid.
However, Tavis McCourt on the other hand seems to speaking sense. I agree with him. Tech spending is certainly suffering in the light of the downturn. Any softness in iPod sales WILL surely pour cold water over any iPhone profits. And the he's right about educational sales taking a dip too.
There are four variables that may show just how robust Apple is in the longer term. One is that Apple is starting to crack the corporate market again. Not just design firms and ad agencies, but also larger corporatations, including a few law firms, are starting to look at the serious TCO numbers that increasingly stack in Apple's favour. The real point to make here is that Vista's total failure to deliver has played right into Apple's hands. Leopard is so slick, reliable and user-friendly in comparison.
The second variable is the iPhone, especially with enterprise software for email now also having an effect on corporate customers. Blackberry outages like Vista's failures have also helped Apple's cause. Whatever anyone says about the iPhone, it is going to get better and better.
The third vairable is Apple's expertise in hardware. We need to remember that Apple's core profit driver is its laptop range. Both the MacBook and MacBook Pro line-ups are due to be properly refreshed this year and I don't expect Apple to disapppoint. In short, i think we'll all be stunned at how they improve. new products should really kick-start sales ahead of the back to college and holiday seasons.
We also need to remember just how much cash Apple is sitting on. It will be investing it in timely upgrades for all important products. Any delay is simply to extract maximum value from existing designs and inventories.
The fourth variable is iTunes movie rentals. I think everyone has been a bit slow to see just how big this going to be. I think it is only a matter of time before the film companies invest in WiFi networks at airports, for example, so we can rent movies prior to boarding a plane. (Anyone with recent expereince of Heathrow Terminal 5 will appreciate such a thing.) One thing is sure, electronically downloaded entertainment is big and here to stay.
Still, Apple's stocked is somewhat over-valued based on its P/E ratio. Investors be cautious. Sure Apple is a great company, the problem is that everyone knows it is a great company.
And...oh! ... i nearly forgot another huge variable. Steve Jobs health. Is he truly cured forom cancer? i pray that he is for his and his family's sake. But if it returns, expect share price melt-down.
When it comes to analyst predictions, I am the first one to weigh in when i think they're talking garbage. For instance, Gene Munster's pathetic attempt to finesse Apple's share price through bullish announcements about the iPhone etc. earlier this week were easy to see through. This was clearly an example of Piper Jaffray trying desperately to claw back some respect after their clients took a bath shortly after Christmas. Munster rated the stock a buy when it was near $200. What a joke.
However, Tavis McCourt on the other hand seems to speaking sense. I agree with him. Tech spending is certainly suffering in the light of the downturn. Any softness in iPod sales WILL surely pour cold water over any iPhone profits. And the he's right about educational sales taking a dip too.
There are four variables that may show just how robust Apple is in the longer term. One is that Apple is starting to crack the corporate market again. Not just design firms and ad agencies, but also larger corporatations, including a few law firms, are starting to look at the serious TCO numbers that increasingly stack in Apple's favour. The real point to make here is that Vista's total failure to deliver has played right into Apple's hands. Leopard is so slick, reliable and user-friendly in comparison.
The second variable is the iPhone, especially with enterprise software for email now also having an effect on corporate customers. Blackberry outages like Vista's failures have also helped Apple's cause. Whatever anyone says about the iPhone, it is going to get better and better.
The third vairable is Apple's expertise in hardware. We need to remember that Apple's core profit driver is its laptop range. Both the MacBook and MacBook Pro line-ups are due to be properly refreshed this year and I don't expect Apple to disapppoint. In short, i think we'll all be stunned at how they improve. new products should really kick-start sales ahead of the back to college and holiday seasons.
We also need to remember just how much cash Apple is sitting on. It will be investing it in timely upgrades for all important products. Any delay is simply to extract maximum value from existing designs and inventories.
The fourth variable is iTunes movie rentals. I think everyone has been a bit slow to see just how big this going to be. I think it is only a matter of time before the film companies invest in WiFi networks at airports, for example, so we can rent movies prior to boarding a plane. (Anyone with recent expereince of Heathrow Terminal 5 will appreciate such a thing.) One thing is sure, electronically downloaded entertainment is big and here to stay.
Still, Apple's stocked is somewhat over-valued based on its P/E ratio. Investors be cautious. Sure Apple is a great company, the problem is that everyone knows it is a great company.
And...oh! ... i nearly forgot another huge variable. Steve Jobs health. Is he truly cured forom cancer? i pray that he is for his and his family's sake. But if it returns, expect share price melt-down.
AAPL, GOOG and others took a bath because the Financials were being purged and set out to the back shed to be shot. The backlash of the the economy disruption hit Technologies across the board.
Apple has shown resilience, not because of analysts telling us this, but because they actually are surpassing their estimates projected from last quarter. In a quarter where many companies are laying off, Apple is expanding.
In short, it doesn't take a financial genius to see that Apple will once again surpass sales and profit estimates this upcoming quarterly report.
RIMM isn't the only company this guy has been dead wrong. Right around the same time he Recomended PALM. This guy is a Joke!
See below for the link.
http://blogs.barrons.com/techtraderd...r/?mod=BOLBlog
If you do, indeed, have the courage and financial resources to invest in equities right now, you might want to look further into MSFT . . . 'cause that dog is going nowhere. NOWHERE! It hasn't for the past eight years and it won't in the next eight! Windows 7 has already--already--been delayed until 2010 or 2011 (I'd bet 2012), and the "Big Ass Table" is already the joke of the industry. The Zune? The iPhune? HA! Being the industry behemoth, and having Ballmer/Gates at the helm, that company has absolutely NO CHANCE to grow in this or any other future decade. None.
There's only one way for MSFT and DELL to go now . . . and that's down. Maybe not enough to make true lovers of innovation happy, but down nevertheless.
Yes, AAPL is vulnerable in these troubled times (WHO ISN'T?), but the course they're presently on is so much more exciting--and potentially profitable--I'm happily keeping my 5700 shares.
The corporate market, back-to-school sales of the newly designed MacBook (if rumors hold), movie rentals, and the wave of switchers picking up even more steam.
It looks great. The unknowns are the economy and Steve's health.
Either has the potential to cause panic and 'meltdown' is exactly what happens once that sets in.
Investing wouldn't be fun without unknown variables!
Classic example of an analyst basing an opinion on GIGO (garbage in garbage out). Sounds like he is more interested in driving down the price of AAPL, in order to generate a better "buy" entry point, than providing any worthwhile insight about the company's future (Unless, of course, he does have a crystal ball.)
What he's saying makes perfect sense. Why do you think Apples shares dropped to under $120?
Apples shares dropped more than the market because of the issues he brought up. With Apples Mac sales growing the way they did in February, in particular, and with the SDK and enterprise additions for the iPhone being announced in March, the stock has risen faster than the market.
The only thing we can fairly argue about in the article is whether Apple's sales will follow the expectations cited, or whether they will weather this recession storm.
iPod sales seem to have been impacted by recession news. The question is what else will be affected.
I can talk about school purchasing a bit. School budgets are being cut all over the country. Where will they be cut? I would think and hope that teachers won't be cut, though I'm seeing sme of that already.
So, it's most likely that programs that deliver technology will be hit. If so, that affects Apple. We'll have to see by how much.
Why do you think Apples shares dropped to under $120?
I think because of irrational paranoia with very little basis in the actual situation. But feel free to disagree with me.
Yes, but when Apple posted reasonable sales for the next qtr the market dropped stock price like a rock. WTF??? A great company, with great products, with great innovation, a market leader all around and the stock price drops like a rock.
It sure sounds like power brokers are manipulating the price with crazy stories, up and down.
Apple just passed Walmart as the largest music seller, iPhone SDK full release in June, education sales upcoming, yes the 3g iPhone this year, and the end of the year sales.
Apple value is exploding. So I fully expect the stock price to follow, I am guessing right back up to $200 or more. And those sudden dips........ just great buying oppertunities. :-)
Just a thought. :-)
I think because of irrational paranoia with very little basis in the actual situation. But feel free to disagree with me.
I don't disagree, because that's how the market operates in the short term. That's why I rarely sell my stock when the market overall forces my own stocks down. In fact, I bought more shares when Apple dropped to about $173, and bought more around $125.
The one thing we can see though, is Apple's purchase of NAND. That's down a great deal, unexpectedly. No doubt due to the recession, and the lower than expected iPod sales.
You said, "With Apples Mac sales growing the way they did in February, in particular, and with the SDK and enterprise additions for the iPhone being announced in March, the stock has risen faster than the market."
Yes, but when Apple posted reasonable sales for the next qtr the market dropped stock price like a rock. WTF??? A great company, with great products, with great innovation, a market leader all around and the stock price drops like a rock.
It sure sounds like power brokers are manipulating the price with crazy stories, up and down.
Apple just passed Walmart as the largest music seller, iPhone SDK full release in June, education sales upcoming, yes the 3g iPhone this year, and the end of the year sales.
Apple value is exploding. So I fully expect the stock price to follow, I am guessing right back up to $200 or more. And those sudden dips........ just great buying oppertunities. :-)
Just a thought. :-)
First of all, let's tackle the idea of stock manipulation. while that does occur, it's not going to drop the price of the stock of a company the size of Apple more than a few points. Institutional investors hold most of Apple's stock, and they don't get that flustered. But, shares go down over a bit of time, as they have done, because daily trading prices can be unduly influenced by a large number of smaller trades. Remember that only a very small percentage of shares for a given company are being publicly traded any day. Much larger blocks of shares are traded privately, and don't always affect the price.
Apple has, along with MS, a history of under representing what they think the next quarter will bring. That's expected to a certain extent, and is incorporated into the stock price by most traders. But, if Apple predicts a lesser amount of sales and profits than expected, the shares will go down, because people are thinking that Apple must know something that they don't. If Apple posts a prediction thats higher than expected the shares will go up for the same reason.
We have to remember that we are in a recession. We can't avoid that. I'm hoping that sales will be resilient, but, we'll see.
Predicting the future is a hopeless task. Correct guesses are far fewer than incorrect ones. I've been disappointed by economists over the years, as economics is not a science, despite all of the Nobel prizes awarded. Economists are far better at explaining what happened in the past than they are at predicting what will happen in the future.
We just have to wait for it to happen.
That's almost exactly what I did, at 161 and 135. I was a bit worried for a time afterwards, but at this point I'm not really regretting either. It will be a tough call whether to sell some off if apple hits a certain point, or just hang onto it long term.
I've been holding since mid 2004, but have bough more at times.
If you have a good company, then selling isn't always the best option, esp. if it's a growth company.. It's too bad Apple has no dividends at all.
However, he sees Apple emerging as "a significant niche player in the mobile handset space over the long term,"
Isn't this an oxymoron?
If it's significant, then how can it be niche?
Apple's been a "niche" company for what, 30 years now? When are people going to stop classifying Apple's stuff as "niche"? They can do anything and everything a Windows computer can or a Blackberry can. They're not niche.