RBC downgrades Apple to 'Underperform', slashes target to $70

Posted:
in General Discussion edited January 2014
The Royal Bank of Canada cut its price target on shares of Apple friday to $70 from $125 and also downgraded the stock to 'Underperform' on concerns of reduced earnings growth as well as uncertainty about the company's leadership.



In a report to clients, analyst Mike Abramsky said he's uncomfortable with Apple chief executive Steve Jobs' unexpected leave of absence, which raises questions about near term leadership, as the company has failed to articulate a clear succession plan.



"Jobs is widely viewed as Apple's chief innovator, dealmaker, leader, deeply involved in minute decisions, inextricably tied to Apple's brand," he wrote. "Jobs' being sidelined for 6 months or more and unavailable day-to-day -- with no clear successor -- in our view raises risks to Apple's sustaining its stellar record of innovation going forward."



Abramsky also cited data from his firm's proprietary Changewave survey released thursday, which indicates further deterioration in consumer electronics spending over the next 90 days. More specifically, it showed that only 28% of respondents are planning to purchase a Mac notebook in the next three months, down from 33% in November, and just 30% planned to buy iPhone 3G this past December, down from 34% in September.



Mac (left) and iPhone (right) buying intentions over the next 90 days.



"Beyond near-term issues (lowered EPS estimates, deterioration in consumer spending and the leadership void) and pending evidence to the contrary, we believe it is prudent to adopt a more conservative approach to the target valuation multiple," he advised clients. "Including a 'Steve Jobs' premium and cash ($27.07 per share), Apple had been trading at 17x, but could correct towards the market (Nasdaq at 13x, PC/wireless peers at 10-12x)."



Shares of Apple were trading down $2.287 (or 2.74%) to $81.093 on the Nasdaq stock market.
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Comments

  • Reply 1 of 55
    MacProMacPro Posts: 19,718member
    I will close my account at RBC today. Morons.
  • Reply 2 of 55
    Quote:
    Originally Posted by digitalclips View Post


    I will close my account at RBC today. Morons.



    I smell an analyst who is trying to make a killing by selling short. The opposite of "pump and dump" is "hump and dump."
  • Reply 3 of 55
    crebcreb Posts: 276member
    Quote:
    Originally Posted by megatrick View Post


    I smell an analyst who is trying to make a killing by selling short. The opposite of "pump and dump" is "hump and dump."



    I agree.
  • Reply 4 of 55
    Quote:

    The Royal Bank of Canada cut its price target on shares of Apple friday to $70 from $125 and also downgraded the stock to 'Underperform' on concerns of reduced earnings growth as well as uncertainty about the company's leadership.



    In a report to clients, analyst Mike Abramsky said he's uncomfortable with Apple chief executive Steve Jobs' unexpected leave of absence, which raises questions about near term leadership, as the company has failed to articulate a clear succession plan.



    "Jobs is widely viewed as Apple's chief innovator, dealmaker, leader, deeply involved in minute decisions, inextricably tied to Apple's brand," he wrote. "Jobs' being sidelined for 6 months or more and unavailable day-to-day -- with no clear successor -- in our view raises risks to Apple's sustaining its stellar record of innovation going forward."





    There are many reasons for the shares of Apple to be downgraded to a price target of $70. Here are a few reasons:





    1- There are no reasons, absolutely no reasons, for Apple to carry a higher valuation or higher multiple for its shares than competing companies listed on the NASDQ Stock Exchange;



    2- Appple's growth is slowing down as evidenced by unofficial sales numbers for Macs and iPhones over the last 2 months;



    3- Steve Jobs was last seen in public in October 2008 which seems to correlate with no new product launches since October 2008, except for the 17 inch MacBook Pro launched at MacWorld 2009;



    4- The product portfolio of Apple carries outdated, one year old, technology, as evidenced by the absence of quad-core Penryn or quad-core Core i7 desktop processors in both the iMac and the MacMini, and the failure to update the iMac and MacMini with new nVidia graphic chipsets;



    5- Apple doesn't sell a business desktop computer and, since it switched over to Intel, doesn't have a desktop consumer or family iMac with a desktop microprocessor, opting instead to use a lower powered, mobile dual-core microprocessor for the iMac which developped into an anorexic thin computer for no reason at all;



    6- The AppleTV is still a joke instead of the home media server it should be, whereas HP has just launched a Mac compatible home media server for homes with extensive media collections and multiple computers;



    7- iTunes is still limited to a store front, playing only what was bought on the iTunes store, especially the low quality 128 kbps .m4a music tracks sold through the iTunes store, whereas buyers can get unprotected 320 kbps music tracks everywhere else on the internet;



    8- iTunes cannot be used to play high quality lossless audio formats like .flac, .ape and .wv because iTunes is not the general purpose media player it should be;



    9- Apple doesn't have a public hardware product roadmap for Mac and iPhone upgrades, only a secret one, which prevents companies and IT departments from getting budget approvals for buying new Macs;



    10- Apple insists on making a fat 35% profit margin on its hardware sales while its competitors reduced their profit margins from 18% to a slim 9% like Dell to increase their market share and make more money from selling more computers;



    11- Apple doesn't use the latest technology in its computers or iPhones, yet demands prices that are $300 to $500 higher than its competitors which offer the latest technology like quad-core CPUs;



    12- While Tim Cook is a solid choice to replace Steve Jobs, Steve Jobs hangs on to his CEO title (and salary, stock options and other perks), while he could limit his role to President of the Board of directors, making for a clear transfer of powers and leadership;



    13- Unlike actor Patrick Swayze who made public his battle against pancreas cancer through a Barbara Walters TV interview, 53 year old Steve Jobs has shrouded in secrecy his own condition and been less than candid at every turn so that there is no confidence that he will ever resume his CEO and President functions at Apple;



    14- The numbing silence of the Apple Board of directors is an indication of how serious the health condition of CEO Steve Jobs is, for otherwise the Board would have provided investors with regular updates on Steve Jobs' health without fear of class action lawsuits for misleading investors;



    15- While Tim Cook is a solid choice to replace Steve Jobs, he would appear to be too much like Steve Jobs, insisting on 35% profit margins while blocking the use of the latest technology in Apple computers and iPhones as a cost saving, and profit increasing, measure.



    16- Apple was considered to be a speculative stock by hedge fund managers who bought hundreds of millions of shares and counted on continued double digit 35% returns based on higher than average selling prices for Macs and iPhones and higher than average sales growth from quarter to quarter, two conditions that Apple can no longer meet in a recession where higher priced Macs stay on store shelves.





    The Intel Core i7 quad-core desktop microprocessor was officially introduced on November 17, 2008. See:



    Intel unleashes Core i7, beats itself @ http://www.tgdaily.com/content/view/40213/135/



    Core i7 PCs launch with prices from $1250 to $13,000 @ http://www.tgdaily.com/content/view/40227/135/





    The Core 2 Quad Q6600 65 nm desktop CPU has been available for $266 since November 2007, and $224 since April 20, 2008. See:



    - Intel to cut 65 nm quad-core processor prices for 45 nm @ http://www.tgdaily.com/content/view/36136/139/



    - Intel drops second quad-core CPU into the mainstream @ http://www.tgdaily.com/content/view/37038/135/



    - Have quad-core processors arrived in the mainstream? @ http://www.tgdaily.com/content/view/36548/135/



    - Intel adds cheap dual-core, quad-core @ http://www.tgdaily.com/content/view/39135/135/





  • Reply 5 of 55
    Quote:

    "Beyond near-term issues (lowered EPS estimates, deterioration in consumer spending and the leadership void) and pending evidence to the contrary, we believe it is prudent to adopt a more conservative approach to the target valuation multiple," he advised clients. "Including a 'Steve Jobs' premium and cash ($27.07 per share), Apple had been trading at 17x, but could correct towards the market (Nasdaq at 13x, PC/wireless peers at 10-12x)."



    Shares of Apple were trading down $2.287 (or 2.74%) to $81.093 on the Nasdaq stock market.





    RBC is my bank, the largest in Canada and, in most respects, a no nonsense bank. No flimsy evaluations where Apple stock has a target price of $235, $240 or $250 within the next 12 months.



    At long last, stock analysts who analyse.





  • Reply 6 of 55
    I think the pure ignorance of RBC here to think that Steve didn't have product refreshes already lined up and in work for the next 6 months is astounding. Who here thinks Apple doesn't know what and roughly when they are going to release things over the next 6 months? I will almost guarantee you they know exactly what they have planned and are probably already well into work on the next iPod updates.



    It's a shame how people think a company can't function without one person - albiet a very powerful, influential person. Apple is more than Steve and Steve knows that.



    Also, you think all that time with Steve hasn't worn off on Cook and Schiller and a number of other higher ups? I'd bet 99% of the time they know what he's going to say about a given product - it's just that they don't look quite as good in black turtlenecks and aren't quite as accomplished actors on stage that's all.
  • Reply 7 of 55
    Ah, the worms are starting to come out. 70? ...really? Whats the P/E ratio they have to justify this?
  • Reply 8 of 55
    Quote:
    Originally Posted by ouragan View Post


    At long last, stock analysts who analyse.









    You seem to know about as much as this analyst does, which is zilcho. No wonder that you think he 'analyzes'.



    Mind explaining to us how exactly the "Steve Jobs premium" was 5X earnings, or do you know the orifice that he pulled it out of?
  • Reply 9 of 55
    richlrichl Posts: 2,213member
    Quote:
    Originally Posted by ouragan View Post


    RBC is my bank, the largest in Canada and, in most respects, a no nonsense bank. No flimsy evaluations where Apple stock has a target price of $235, $240 or $250 within the next 12 months.



    I agree.



    I believe that APPL will be nearer to $70 than $240 in 12 months time. The economy isn't going to recover for several years, Steve Jobs or not.
  • Reply 10 of 55
    I invested in Apple in 2000, and held my shares until 2 d ago. I sold along the way, bought along the way, but 2 d ago, I needed the money and decided to leave.

    I did not lose much overall, but to me this whole thing feels like gambling...

    The same way you try to memorize which cards were played and likelihood of success and yada yada... Here you're trying not only to predict the company's future performance, which will be fine, but how the stock will move which is affected by feelings more than science...

    I decided it is no longer worth it to participate in this charade... Maybe I just suck at it...
  • Reply 11 of 55
    Quote:
    Originally Posted by RichL View Post


    I agree.



    I believe that APPL will be nearer to $70 than $240 in 12 months time. The economy isn't going to recover for several years, Steve Jobs or not.



    That's not really the question. The question is do you think in 12 months time it'll be closer to 70 or 125? I'm almost 100% sure it's 125 given the fact that last time Cook stepped in the stock took a big hit at first and then the company did really well and the stock went up again. People are just freakin out and not thinking logically (what exactly are you paying an analyst for if all he/she does is use emotions to guide their predictions?)
  • Reply 12 of 55
    e1618978e1618978 Posts: 6,075member
    Quote:
    Originally Posted by AppleInsider View Post


    Including a 'Steve Jobs' premium and cash ($27.07 per share), Apple had been trading at 17x, but could correct towards the market (Nasdaq at 13x, PC/wireless peers at 10-12x).



    By their formula, the stock should be



    5.36 * 13 + 27.07 = 96.75



    The problems with their reasoning:

    1. EPS this quarter will be a blowout, I think it will be 2.30/share for the quarter coming up.

    2. EPS growth is much larger than any of those "peers", so it deserves are larger multiple

    3. No debt, Nasdaq average company has a bunch of debt.
  • Reply 13 of 55
    ktappektappe Posts: 823member
    Quote:
    Originally Posted by obs1970 View Post


    I did not lose much overall, but to me this whole thing feels like gambling...



    That's because it is gambling. I too bought into Apple in 1999 and 2000, when I knew from the technical side that they had winning products and winning leadership. After 4 years I finally gave up on the market ever figuring this out and sold at a wash. Then everyone else suddenly clued in and it skyrocketed. Not because Apple was suddenly 5x better company than it had been, but because the "analysts" finally clued in after having their heads up their butts for years.



    Now it's the same thing in reverse. Tim Cook has been running Apple day-to-day for over a year, but these "analysts" are claiming there is no leadership now. This makes investing in Apple a pure gamble--the price fluctuates with absolutely no regard for the company's product line or sales. "Stay away" I warn everyone.
  • Reply 14 of 55
    Don't you think Steve would have planned new products, announcements, etc. for the next year, not alone 6 months, even without the health issue? I kind of think the lack of new product announcements at MacWorld was to pave the way for plenty of mouth watering stuff to be released in his absence.
  • Reply 15 of 55
    Quote:
    Originally Posted by ouragan View Post


    RBC is my bank, the largest in Canada and, in most respects, a no nonsense bank. No flimsy evaluations where Apple stock has a target price of $235, $240 or $250 within the next 12 months.



    At long last, stock analysts who analyse.









    What a hilarious analysis by RBC. It looks like they want to pick up some cheap stock before the earnings announcement next week. Was anybody in an Apple store over the holidays. HELLO!!! These guys obviously weren't! I love how these firms try to manipulate the price of stock for their own internal benefit. Like they are doing us all a favor. Just wait until we all see how many iPhones were sold in Q4. Cheers!
  • Reply 16 of 55
    jeffdmjeffdm Posts: 12,951member
    Quote:
    Originally Posted by megatrick View Post


    I smell an analyst who is trying to make a killing by selling short. The opposite of "pump and dump" is "hump and dump."



    I've been trying to understand what shorts are. Well, I think I understand how they are done, but I don't understand why they're allowed or why they're needed.
  • Reply 17 of 55
    I hate to say it, but Apple analysts and the stock are wacky on the upside and even more wackier on the downside.



    In a market where we are supposedly separating the wheat from the chaff, a company with differentiated products, diverse revenue lines, a deep product pipeline, stellar management team, huge profits, high operating margins and massive cashflow gets downgraded and creamed.



    This "analysis" is more about short term momentum than anything. Consumer. Check. High-end. Check. Leadership uncertainty. Check. Insert company name here.



    Shoot first, and do real analysis later, something I blogged about in:



    Punishing the Wizard: On Apple and Steve Jobs

    http://thenetworkgarden.com/weblog/2...teve-jobs.html



    Check it out if interested.



    Cheers,



    Mark
  • Reply 18 of 55
    "The opposite of "pump and dump" is "hump and dump.""



    Actually, it's "short and distort."
  • Reply 19 of 55
    This analyst is just trying to make a name for himself. Several months ago, Fortune published an article "the genius behind Steve Jobs". Apple was obviously communicating to the world that Apple is not a one man show. There is depth in talent in everything from industrial design, marketing and operations. Add to that $28 billion in the bank.



    Cash represents about $30/share. You have to take current share price minus cash and you get a forward p/e ratio of about 8 times earnings. This is a ridiculously CHEAP valuation for a growth stock.



    It is a real possibility that Jobs will never return as CEO and the street expects this. Product pipeline is at least 18-24 months long. Apple shareholders don't need to worry about new products for a while.
  • Reply 20 of 55
    Quote:
    Originally Posted by digitalclips View Post


    I will close my account at RBC today. Morons.



    Good decision. Pass it along.
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