Wells Fargo upgrades Apple stock to 'outperform,' says recent correction is an overreaction

Posted:
in AAPL Investors edited August 2015
Longtime Apple bear Wells Fargo Securities changed its rating on the iPhone maker on Tuesday, saying recent losses in the company's stock have been overdone, especially in light of the company's continued success in China.




Wells Fargo Securities originally downgraded AAPL stock in early 2014 citing concerns over the company's margins. It had maintained its "market perform" rating until Tuesday, when analyst Maynard Um upgraded Apple to "outperform," calling the company's recent share slide an overreaction.

Um noted that shares of Apple have declined about 22 percent since mid-July, and 8.5 percent since just last Thursday. He sees those losses as a buying opportunity for investors.

"While we note that our fundamental stance on Apple's challenges are unchanged, we believe shares have over-corrected," Um wrote. "Tim Cook's email to CNBC's Jim Cramer that iPhone activation growth in China "has actually accelerated over the past few weeks..." gives us better visibility to the Sept. quarter (September is typically an iPhone transition month making Jul./Aug. important, in our opinion)."

In addition, he believes that the market is not giving Apple the benefit of its cash balance. As of the end of last quarter, the company had more than $200 billion in cash, most of it held offshore.

Um cautioned that his same concerns about Apple remain --?he thinks the company still has tough year-over-year comparisons ahead in the December quarter, he's worried about declining iPad sales, and he's less bullish on the Apple Watch than consensus on Wall Street.

Wells Fargo's valuation range for AAPL stock is between $125 and $135. Shares of the company slid to $103 on Monday, amid greater losses across all of the market.

Continued concern over Apple prompted Chief Executive Tim Cook to send an email to CNBC analyst Jim Cramer, revealing material information about growth in China. The news proved encouraging for Um and others.

"I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August," Cook wrote. "Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance for the App Store in China during the last 2 weeks."
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Comments

  • Reply 1 of 35
    irelandireland Posts: 17,747member
    Wall St. is a con.
  • Reply 2 of 35
    rob53rob53 Posts: 2,518member
    Quote:

    Originally Posted by sog35 View Post

     

    ... Will Wall Street actually risk a recession just to tank Apple? I don't think so.


    This statement says it all about Wall Street. They hate Apple specifically and Apple's success even more. They continue not to understand anything about Apple, instead trying to kill them. Whether people like Apple products or not, Apple is a company that is making so much money it's ridiculous yet Wall Street won't give them any credit. It's like an English teacher refusing to give a great student writer anything better than a C when everyone loves this student's writing. Wall Street is jealous and as you say, could ruin the world's economy because they refuse to admit it.

  • Reply 3 of 35
    SpamSandwichSpamSandwich Posts: 33,408member
    Maynard Um should be clothed in rags and eating out of dumpsters by now. Who employs such a moron?
  • Reply 4 of 35
    schlackschlack Posts: 708member
    it's such a racket. crash the stock. buy it all. push it back up. sell. repeat.

    doomed. doomed.
  • Reply 5 of 35
    rob53rob53 Posts: 2,518member
    Quote:

    Originally Posted by ranson View Post



    All of the links in this article go to other AI articles. Where did Um make these remarks? What source are you quoting? Responsible journalism please. Cite your sources.



    Check out https://eresearch.fidelity.com/eresearch/evaluate/news/basicNewsStory.jhtml?symbols=AAPL&pageno=&storyid=201508250858MRKTWTCHNEWS_SVC000172&provider=MRKTWTCH&product=NEWS_SVC&; I know it's just another financial firm saying someone said something but it echoes what's said here.

  • Reply 6 of 35
    bradipaobradipao Posts: 145member
    In addition, he believes that the market is not giving Apple the benefit of its cash balance. As of the end of last quarter, the company had more than <a href="http://appleinsider.com/articles/15/07/21/notes-of-interest-from-apples-q3-2015-conference-call">$200 billion</a> in cash, most of it held offshore.

    Apple has 220B$, but 190B$ are currently stuck offshore, in fact Apple has to issue bond to finance buy-backs and return to investors.
    In my opinion once the "tax holiday" is finalized and approved, AAPL should sky-rocket.
  • Reply 7 of 35
    b9botb9bot Posts: 238member

    Overreaction is an understatement to say the least. 

  • Reply 8 of 35
    thrangthrang Posts: 870member
    Quote:

    Originally Posted by sog35 View Post

     

    I'll say it again.

     

    If Wall Street allows Apple to explode up to $140-$150 this year the USA stock market will recover and test all time highs before the end of the year.

     

    If Wall Street continues to manipulate Apple's price down the USA stock market will tank and threaten our economy.

     

    Apple is the bell weather.  Where it goes the next 4 months will determine what happens to the broad USA stock market.  And in turn the USA market moves the entire world market.

     

    That is why I think my $150 price target for EOY is still possible.  Will Wall Street actually risk a recession just to tank Apple? I don't think so.




    With as much Apple stock as I own, that would be great, but frankly no way $150 by EOY. It will do well to get back to mid to high $120's.

     

    Don't forget, this search for bottom is likely not over just because today is up so far.

  • Reply 9 of 35
    Quote:

    Originally Posted by schlack View Post



    it's such a racket. crash the stock. buy it all. push it back up. sell. repeat.



    doomed. doomed.



    exactly. And the SEC is all bent out of shape that Tim Cook sent Cramer and email and does nothing about the greedy wall street fat cats who have been manipulating Apple since it joined the Dow.

     

    If Cook could pull Apple from the Dow, he should do it with a huge middle finger raised to all the filet mignon, sherry drinking, suspender wearing slime balls as he walks out the door.

  • Reply 10 of 35
    Quote:

    Originally Posted by Ireland View Post



    Wall St. is a con.

    That has to be the dumbest statement I've heard in a while.

  • Reply 11 of 35

    Is analyst still worried about "bendgate" to?

  • Reply 12 of 35
    cnocbuicnocbui Posts: 3,613member
    Quote:
    Originally Posted by sog35 View Post

     

    I'll say it again.

     

    If Wall Street allows Apple to explode up to $140-$150 this year the USA stock market will recover and test all time highs before the end of the year.

     

    If Wall Street continues to manipulate Apple's price down the USA stock market will tank and threaten our economy.

     

    Apple is the bell weather.  Where it goes the next 4 months will determine what happens to the broad USA stock market.  And in turn the USA market moves the entire world market.

     

    That is why I think my $150 price target for EOY is still possible.  Will Wall Street actually risk a recession just to tank Apple? I don't think so.


     

    I disagree with you.  The US stock market is a disaster waiting to happen.  It is a fat bloated bubble just waiting for the right pin.  For Apple shares to inflate to $150 would just be even more fuel waiting for the coming spark.

     

    Apple is a great company, but its share price will not be immune to the coming adjustment.

     

     

    The only thing wrong with that chart is that the red line on the end didn't keep on going 12000 or so.  It wouldn't surprise me if some engineers were out yesterday trying to erect a floor at 16000.

  • Reply 13 of 35
    Quote:
    Originally Posted by cnocbui View Post

     

    I disagree with you.  The US stock market is a disaster waiting to happen.  It is a fat bloated bubble just waiting for the right pin.  Etc Etc.


    If you really believe this -- and are not just spouting off -- you can profit from it. You know, put your money where your mouth is. Buy long-term index puts.

     

    Don't you want to become more wealthy? Why don't/won't you do it?

     

    (Fixed a typo).

  • Reply 14 of 35
    fallenjtfallenjt Posts: 4,019member
    rob53 wrote: »
    This statement says it all about Wall Street. They hate Apple specifically and Apple's success even more. They continue not to understand anything about Apple, instead trying to kill them. Whether people like Apple products or not, Apple is a company that is making so much money it's ridiculous yet Wall Street won't give them any credit. It's like an English teacher refusing to give a great student writer anything better than a C when everyone loves this student's writing. Wall Street is jealous and as you say, could ruin the world's economy because they refuse to admit it.
    concur. Also, this morning, Best Buy CEO praised that the demands of Apple watches are ridiculously strong. Looks like 15 million unit by year end is not a problem. I believe AAPL will go vack to $115 next week.
  • Reply 15 of 35
    fallenjtfallenjt Posts: 4,019member
    If you really believe this -- and are not just spouting off -- you can profit from it. You know, put your money where your mouth is. Buy long-term index puts.

    Don't you want to become more wealthy? Why don't/won't you do it?

    (Fixed a typo).
    cause he ain't know shit. If anyone, ANY can predict stock movement right, he doesn't need to waste the time in this board, but on market to make money. I'm a long term AAPL investor, and wasn't shaken with the stock price yesterday. I'm confident at $130ish by year end.
    What if Tim Cook's "One more thing" in the coming keynote is this: Apple Car? WS anal yst would pee in their pants and stocks will skyrocket.
  • Reply 16 of 35
    gatorguygatorguy Posts: 22,898member
    sog35 wrote: »
    You need to remember that much of the $190 billion has already been taxed in foreign countries.   In other words even if Apple repatriates that cash they will not pay the full 35% tax in the US.  Also much of that $190 billion the taxes have already been accrued on Apple's financials.  In other words even if they pay taxes on repatriated funds to the US they won't show any tax expense on the current financials.

    I estimate that 15-20% taxes were already paid to foreign countries on that $190 billion.  In other words if Apple brings that cash to the US they would only pay the incremental US taxes of 20-15%.  So if Apple repatriated the entire $190 billion they would still keep between $150 billion and $160 billion after paying taxes.

    Taking out net cash Apple is valued at $450 billion.  They will make $55 billion in profits next year.  That gives them a ridiculous 8 PE.
    Why would they repatriate most of it? They don't pay any taxes whatsoever on a big chunk of it so why pay some now by bringing it home, even at 10%?

    EDIT: FWIW your estimate that Apple has already paid upwards of 20% of their overseas tax bill is far higher than that from other professionals. How did you compute your figures out of curiosity?

    "At the end of its most recent fiscal year, Apple held an astounding $157.8 billion in profits offshore -- beating out all Fortune 500 firms -- while paying a foreign tax rate of only 2 percent. Meanwhile, Microsoft held $92.9 billion while paying a foreign tax rate of only 3 percent. Other top cash hoarders that paid less than ten percent included the Manhattan-based banking conglomerate CitiGroup with $43.8 billion and a 9 percent tax rate and the Silicon Valley software giant Oracle with $32.4 billion and a 4 percent tax rate."
    http://ctj.org/pdf/pre0415.pdf
  • Reply 17 of 35
    gatorguygatorguy Posts: 22,898member
    sog35 wrote: »
    That's false.  Even in Ireland they pay 10% taxes.le's cash hoard discounted by taxes.  Many trolls say Apple's $190 billion in foreign cash is worthless.  Which is false.  Even after taxes its worth between $150-$160 billion.
    Source? I've not seen one that claims Apple actually paid more than 2%. I think I recall that Apple does not report tax obligations on profits they have no intention of bringing home, an amount north of $100B. Is that accurate?
  • Reply 18 of 35
    nhughesnhughes Posts: 765editor
    Quote:

    Originally Posted by ranson View Post



    All of the links in this article go to other AI articles. Where did Um make these remarks? What source are you quoting? Responsible journalism please. Cite your sources.



    Um made the remarks in a research note. Um himself is the source.

  • Reply 19 of 35
    gatorguygatorguy Posts: 22,898member
    sog35 wrote: »
    Look at Apple SEC filings

    http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10818004-6255-207633&type=sect&TabIndex=2&dcn=0001193125-15-259935&nav=1&src=Yahoo

    Look under statement of cash flow:

    For the 9 months ending Jun2015 they had $42 billion in profit.  They paid $10.6 billion in taxes - yes they actually PAID that amount out of their cash.  That is a rate of about 25%.

    USA accounts for about 30-35% of Apple's profits.  Those get taxed at 35%.
    If the rest of their profits is taxed at 2% it is mathetmatically impossible for their company wide tax rate to be 25%.

    If foreign profits were taxed at 2% Apple's company wide tax rate would be 13.5%

    From my calculations the foreign tax rate is closer to 20%.


    USA profits 
    35% of entire company x $50 billion in profit = $17.5 billion in USA profit
    $17.5 billion x 35% tax rate = $6.1 USA taxes

    65% of profit from foreign x $50 billion in company wide profit = $32.5 billion in foreign profit
    $32.5 billion in profit x 20% tax rate = $6.5 foreign taxes

    Total taxes = $12.6 billion 
    Tax rate = 25%

    Now change that calculation using 2% tax rate for foreign profits and the company wide tax rate drops to 13.5%.  Which is totally wrong.
    Where are you accounting for Apple's undistributed foreign earnings, on which they don't record any tax obligations AFAIK? Last year alone they amounted to over $50B didn't they?
  • Reply 20 of 35
    gatorguygatorguy Posts: 22,898member
    sog35 wrote: »
    Not sure what you mean.  I think the $50B you are talking about is taxes that Apple has expensed but not paid yet.  But if you look at the statement of cash flow it shows what Apple actual paid.  And it is about 25% of net profit.

    But just mathematically its impossible for Apple to have a 25% company wide tax rate and only pay 2% tax on foreign profits.

    Apple only gets about 35% of its profits from the USA.

    At a 25% company wide tax rate Apple will pay about $12.5 billion in taxes.
    At a 35% USA tax rate Apple pays $6 billion in USA taxes ( $50 billion x 35% x 35%)

    So they pay an ADDITIONAL $6.5 billion in foreign taxes.  Mathematically it is impossible for Apple to both have a 2% foreign tax rate and pay $6 billion in annual foreign tax.
    Might you be confusing paid, actual cash went to the US government, with an obligation to pay if/when profits are transferred to the account of Apple US? In addition you almost certainly are aware that two of the three Irish subsidiaries have no tax obligations to anyone since they have no tax residency in any country. Theres's $10's of billions in profit you don't seem to be accounting for. It's tax-free money thru a creative and unique method of tax avoidance. There's no 20% being paid on it, not even 5%.
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