Wall Street: Apple is "magical growth story" in tech, defies gravity

Posted:
in AAPL Investors edited January 2014
Wall Street was impressed with Apple's record earnings for the second quarter of fiscal 2011 on Wednesday, as one analyst calling the company a "magical growth story" and several firms raised their revenue estimates for future quarters.



J.P. Morgan



J.P. Morgan analyst Mark Moskowitz issued a note to investors late Wednesday projecting that Apple's stock will rebound as investor confidence in Apple's continued growth is restored. The company's record-breaking second quarter results, which included 83 percent year over year revenue growth, "have gotten too big to ignore as Apple defies the law of gravity," Moskowitz said.



"In our view, Apple is the magical growth story in large-cap tech. The iPhone and Mac momentum should keep investors interested, particularly as light iPad units in the March quarter related to launch timing and not demand," he continued.



Apple handily surpassed J.P. Morgan's expectations for the second quarter of fiscal 2011, despite the fact that the firm's estimates were ahead of Wall Street consensus estimates.



Moskowitz reiterated his Dec. 2011 price target of $450 and raised estimates for Apple. "Bulls win," he declared, adding that "Apple squashed the recent parade of investor concerns."



In particular, Moskowitz pointed to Apple's improved gross margins and projection of just $200 million in negative impact to revenues from last month's Japan disaster. Apple posted 41.4 percent gross margins for the March quarter and projected 38 percent margins for the third quarter of the fiscal year. According to Moskowitz, some "bogey investors" had predicted Apple's margins would fall to 36 percent.



On Wednesday, Apple Chief Operating Officer Tim Cook told investors that the company hadn't been significantly impacted by supply disruption in Japan, though he did caution that the situation remains volatile.



Moskowitz's revised estimates see Apple generating $5.55 in Earnings Per Share next quarter, up from a previous estimate of $5.35. The windfall comes mainly from a better than expected gross margin, as Moskowitz actually revised revenues downward while projecting increased profits.







For the 2011 fiscal year, Moskowitz predicts $102.90 billion in revenue and $24.30 EPS. By comparison, the Street consensus prior to Wednesday's earnings call stood at $100.77 billion in revenue and $23.00 EPS for the current fiscal year.



Moskowitz indicated that he does not believe a "major refresh" of the iPhone will come this year. "There will be [an iPhone refresh], but it is not likely to be a form factor change," he said, cautioning that customer anticipation of an iPhone update could lead to a "summer malaise" in smartphone.



Last week, J.P. Morgan revised its estimates upwards, while accurately predicting that supply constraints would limit sales of the iPad 2. According to a recent report from one analyst, Apple intends to double shipments of the iPad in the third quarter of fiscal 2011.



Morgan Stanley



Morgan Stanlye's Katy Huberty viewed Wednesday's results from Apple as providing a "line of sight" to Morgan Stanley's bull case of $50 EPS in 2013. Huberty's bull case projects shares of Apple will reach $540 by Nov. 2011, while her base case and bear case project $428 and $270 respectively.



"Apple?s March quarter results present several encouraging data points that support our thesis and increase the likelihood of our bull case price target," Huberty wrote in a note to clients Wednesday.







Citing staggering demand for the iPad 2, Apple's runaway growth in China and the company's commitment to replicating its China strategy in other emerging markets. Huberty also saw accelerating iPhone growth, above expectation margins and the reassurance that Apple remains largely unaffected by supply issues in Japan as strong positives for Apple.



Huberty did, however, air a short list of concerns that could hinder Apple's bull case. For instance, the lack of an iPhone launch in the June quarter could adversely affect unit sales. Also, Apple's indication that it does not plan to introduce an LTE iPhone this year could spark investor worries.



According to earlier notes from Huberty, four key under-appreciated growth catalysts could contribute to Apple's bull case: sales growth in the Asia Pacific region; expansion price points for the iPhone leading to increased smartphone market share; a "Smart TV" new product category and continued dominance in the tablet market.



Piper Jaffray



Piper Jaffray analyst Gene Munster issued a note to clients Thursday saying, "We continue to be buyers of AAPL," and calling Apple's March quarter "monster" in spite of iPad 2 shortages.



Munster believes that iPad 2 supply and demand won't hit equilibrium until "late in the June quarter." He also expressed relief at the news that Apple had eliminated a "key risk factor in the June quarter" by avoiding supply issues in Japan.



Munster agreed with recent reports that Apple will ship the iPhone 5 in "the Sept. quarter (likely in the month of Sept.)."



The analyst noted that Piper Jaffray projects Apple's revenue will be down 3 percent quarter over quarter in June. According to Munster, Apple's revenues have gone up an average of 4 percent from the March quarter to the June quarter over the past ten years.



However, Munster explains Piper Jaffray's modeling breaks from the trend because it views $1.1 billion of Apple's revenue from the second quarter of fiscal 2011 as a temporary gain from a "1.7 million iPhone unit channel fill." When adjusted for the channel fill, Munster's predictions show Apple growing revenue by 1 percent quarter over quarter in June.



Given Apple's news that iPhone sales in China, a mostly pre-paid market for mobile phones, were up over 3 times last year's numbers, Munster sees continued expansion in pre-paid markets as an opportunity for Apple.



Munster raised his price target from $483 to $554 and maintained an Overweight rating on shares of Apple.
«1

Comments

  • Reply 1 of 39
    solipsismsolipsism Posts: 25,726member
    They need to revise their revenue between fiscal 2011 and fiscal 2012. It’s only about a 12% increase YoY.
  • Reply 2 of 39
    It's not magic. Apple innovates, executes and controls costs. Most oher major companies only focus on cost cutting
  • Reply 3 of 39
    magicjmagicj Posts: 406member
    Quote:
    Originally Posted by SailorPaul View Post


    It's not magic. Apple innovates, executes and controls costs. Most oher major companies only focus on cost cutting



    No, it's magic. I popped open my iPad and it had little baby unicorns inside.
  • Reply 4 of 39
    brookstbrookst Posts: 62member
    Quote:
    Originally Posted by SailorPaul View Post


    It's not magic. Apple innovates, executes and controls costs. Most oher major companies only focus on cost cutting



    It is magic. Pretty much every other company of Apple's size can barely stay out of its own way, let alone innovate and create new multi-billion-dollar markets every few years. How do you keep a company of that size nimble and agile and willing to take risks? It has to be magic, because if there was a simple explanation everyone else would be doing it.
  • Reply 5 of 39
    OMG. Did J.P. Morgan call Apple's growth "magical"? And the haters laughed when Steve used that word.
  • Reply 6 of 39
    Legitimate criticism is one thing, but I really am just waiting for the Apple haters to come out with "no it's not magic, it's technology" and "Apple doesn't devy gravity, it's stores sit on the ground like everyone else".



    Not really exaggerating, I've heard very similar comments.
  • Reply 7 of 39
    Apple downgraded?

    Alex Gauna has zero credibility. He ought to be fined, jailed, and demoted for his incompetent, destructive, and baseless FUD.
  • Reply 8 of 39
    boeyc15boeyc15 Posts: 986member
    So what is the latest on the amount of Apple's cash stash? Did anyone ask during the call?
  • Reply 9 of 39
    addaboxaddabox Posts: 12,664member
    Quote:
    Originally Posted by boeyc15 View Post


    so what is the latest on the amount of apple's cash stash? Did anyone ask during the call?



    65.8 billion, cash + securities.
  • Reply 10 of 39
    mdriftmeyermdriftmeyer Posts: 7,503member
    JP Morgan's 2011 adjusted predictions for the iPad will be very conservative.



    They'll also miss on the Macs.
  • Reply 11 of 39
    I don't know how many technology companies Ms. Huberty runs, but she's clearly someone Apple should hire to run their outfit.



    Fancy Apple not launching a new iPhone when she thinks they should! Investors beware!



    And just imagine! Apple's missing the boat on LTE phone technology and is about to get clobbered by more nimble competitors! If only they would listen to Ms. Huberty.



    Why is it that there is always some latter-day Jeremiah piping up even when a company announces BRILLIANT results?



    Why would you launch a new phone before it's needed? Is there some sign that the iPhone 4 is falling off in popularity? Well, is there?



    And has some mysterious standardization occurred overnight in the 4G field so Apple can be sure LTE is the right approach? Well?



    I think we can safely leave product strategies to Apple, and ignore Ms. Huberty on these particular matters.
  • Reply 12 of 39
    The article's title somehow wants to imply that, logically, AAPL should be going down badly.



    Rather, the converse is true. AAPL has been held down by short-sellers, out to make a quick profit, and, strangely enough, it is now even increasing *after* the announcement of stellar results.
  • Reply 13 of 39
    pk22901pk22901 Posts: 153member
    Quote:
    Originally Posted by steftheref View Post


    I don't know how many technology companies Ms. Huberty runs, but she's clearly someone Apple should hire to run their outfit...



    I think we can safely leave product strategies to Apple, and ignore Ms. Huberty on these particular matters.



    Do your homework! Katy Huberty is one of the smartest and best informed Apple bulls. Although she can argue her bull case at $540 (no change in multiple assumed), she's raising some legitimate concerns and possible upside surprises.



    IOW, she's doing her job with great intelligence and her bold mobile presentation supports her thesis: Apple is monstrously positioned in mobile. (BTW, Apple at $540 will be worth near 1/2 a trillion $$$$.)



    http://tech.fortune.cnn.com/2011/03/...re/#more-55545
  • Reply 14 of 39
    matrix07matrix07 Posts: 1,993member
    Now the haters will hate JP Morgan for using the M word.
  • Reply 15 of 39
    shaun, ukshaun, uk Posts: 1,050member
    Quote:
    Originally Posted by magicj View Post


    No, it's magic. I popped open my iPad and it had little baby unicorns inside.



  • Reply 16 of 39
    alandailalandail Posts: 696member
    Quote:
    Originally Posted by BrooksT View Post


    It is magic. Pretty much every other company of Apple's size can barely stay out of its own way, let alone innovate and create new multi-billion-dollar markets every few years. How do you keep a company of that size nimble and agile and willing to take risks? It has to be magic, because if there was a simple explanation everyone else would be doing it.



    It's the benefit of building things with an OS that is object oriented and that uses perhaps the best OO language around vs competition that still trying to scale the C based Win32 APIs everywhere.
  • Reply 17 of 39
    xsuxsu Posts: 401member
    Quote:
    Originally Posted by BrooksT View Post


    It is magic. Pretty much every other company of Apple's size can barely stay out of its own way, let alone innovate and create new multi-billion-dollar markets every few years. How do you keep a company of that size nimble and agile and willing to take risks? It has to be magic, because if there was a simple explanation everyone else would be doing it.



    It's all about leadership. Steve Job is one of those rare individual who has a great vision, stubbornly focused on realizing that vision, strong willed enough to crush any opposition to that vision, and charismatic enough to get other people to share his vision.



    That's the reason for Apple's success, and probably will cause Apple a great deal of transitional pain when someone else has to take over the position.
  • Reply 18 of 39
    ltmpltmp Posts: 204member
    Quote:
    Originally Posted by steftheref View Post


    I don't know how many technology companies Ms. Huberty runs, but she's clearly someone Apple should hire to run their outfit.



    Fancy Apple not launching a new iPhone when she thinks they should! Investors beware!



    And just imagine! Apple's missing the boat on LTE phone technology and is about to get clobbered by more nimble competitors! If only they would listen to Ms. Huberty.



    Why is it that there is always some latter-day Jeremiah piping up even when a company announces BRILLIANT results?



    Why would you launch a new phone before it's needed? Is there some sign that the iPhone 4 is falling off in popularity? Well, is there?



    And has some mysterious standardization occurred overnight in the 4G field so Apple can be sure LTE is the right approach? Well?



    I think we can safely leave product strategies to Apple, and ignore Ms. Huberty on these particular matters.



    Although I agree with you in general, some of Huberty's comments are reasonable (IMHO).



    AAPL has been successful largely because they make the hard decision to take a long view. Holding off on iPhone 5 might well hurt them in the short term (in terms of market share and valuation), but in the long run, it is probably an excellent decision.

    Wall Street does not reward the long view, which is part of the reason the world is in a financial mess.
  • Reply 19 of 39
    garamondgaramond Posts: 109member
    Quote:
    Originally Posted by xsu View Post


    That's the reason for Apple's success, and probably will cause Apple a great deal of transitional pain when someone else has to take over the position.



    I shudder at the very thought
  • Reply 20 of 39
    d-ranged-range Posts: 396member
    Quote:
    Originally Posted by Suddenly Newton View Post


    OMG. Did J.P. Morgan call Apple's growth "magical"? And the haters laughed when Steve used that word.



    That's a good one, I'll remember this when I see another one of these stale cynical 'OMG it's magical!' jokes haters are regurgitating ad nauseam on other blogs. Now, if Google or Samsung could be so kind to say that the iPad has been revolutionary, we can finally all move along and the haters can go find some other snarky jokes to feel a little less insecure about their own gadget preferences.
Sign In or Register to comment.