ATR analyst downgrades Apple despite strong results
Citing concerns with slowing revenue growth and high investor expectations, American Technology Research (ATR) analyst Shaw Wu on Thursday weighed in differently than most, downgrading shares of Apple to "Hold" with a price target of $46.
In a research note obtained by AppleInsider, Wu said, "We continue to believe Apple remains the best-positioned to capitalize on the digital music opportunity with arguably the industry's most powerful and complete stack of hardware, software, and service."
Additionally, the analyst believes that Apple's core Mac business could re-accelerate with new product momentum and as more "switchers" convert to the Mac platform.
Despite these strong points, Wu downgraded his rating on Apple shares from "Buy" to "Hold" based on four key reasons:
First off, Wu said his firm is growing more concerned with Apple's slowing top-line growth, which he said is not being helped by lower than expected average selling price (ASP) trends in both the company's iPod and Mac businesses. While iPod unit sales were strong at 5.3 million, ASP declined 28% quarter to quarter, indicating stronger growth in lower cost products like the iPod shuffle. Moreover, the analyst noted that Mac ASPs declined 9% quarterly, pointing to a mix shift towards Mac mini and iMacG5, despite strength in PowerBookG4.
As a second cause for the downgrade Wu cited high investor expectations, which he believes will likely be met by a decreasing number of "big up side surprises" in the near future. While Apple upsided its earnings-per-share (EPS) guidance by 14 cents and revenue by over $300, ATR believes investors may not be happy with these results and may have baked future upside expectations into the company's stock price. "In our view, investors do not believe AAPL's guidance and have much higher unpublished expectations," Wu said.
ATR also believes increasing availability of Apple products to be potential sign of decreasing growth, not increased production.
As a final key reason, the firm pointed to Apple's top-line growth, which it says could potentially slow to 12-15% in fiscal year 2006, down from its current 70% year over year level. "As a result, we believe AAPL's trading multiple may compress," Wu said.
ATR said the weaker than expected HDD-based iPod sales could be slightly negative for microdrive and component players, including Agere, Marvell, Seagate Technology, PortalPlayer and Synaptics. However, the firm said better than expected iPod shuffle shipments could benefit SigmaTel, which supplies controller chips for the flash-based players.
While ATR lowered its price target on Apple from $50 to $46, the firm raised its estimates for Apple's next two fiscal years (FY). The firm bumped FY05 estimates from $1.10 to $1.31 and FY06 estimates from $1.25 to $1.45.
Out of the 5.3 million iPods shipped during Apple's March quarter, ATR believes 2 million were iPod shuffles, slightly above guesstimates from research firm PiperJaffray, which said that Apple likely shipped 1.8 million of the flash-based players.
Apple shares tumbled $3.78, or 9.2 percent, to close at $37.26 in Thursday trading on the Nasdaq Stock Market.
In a research note obtained by AppleInsider, Wu said, "We continue to believe Apple remains the best-positioned to capitalize on the digital music opportunity with arguably the industry's most powerful and complete stack of hardware, software, and service."
Additionally, the analyst believes that Apple's core Mac business could re-accelerate with new product momentum and as more "switchers" convert to the Mac platform.
Despite these strong points, Wu downgraded his rating on Apple shares from "Buy" to "Hold" based on four key reasons:
First off, Wu said his firm is growing more concerned with Apple's slowing top-line growth, which he said is not being helped by lower than expected average selling price (ASP) trends in both the company's iPod and Mac businesses. While iPod unit sales were strong at 5.3 million, ASP declined 28% quarter to quarter, indicating stronger growth in lower cost products like the iPod shuffle. Moreover, the analyst noted that Mac ASPs declined 9% quarterly, pointing to a mix shift towards Mac mini and iMacG5, despite strength in PowerBookG4.
As a second cause for the downgrade Wu cited high investor expectations, which he believes will likely be met by a decreasing number of "big up side surprises" in the near future. While Apple upsided its earnings-per-share (EPS) guidance by 14 cents and revenue by over $300, ATR believes investors may not be happy with these results and may have baked future upside expectations into the company's stock price. "In our view, investors do not believe AAPL's guidance and have much higher unpublished expectations," Wu said.
ATR also believes increasing availability of Apple products to be potential sign of decreasing growth, not increased production.
As a final key reason, the firm pointed to Apple's top-line growth, which it says could potentially slow to 12-15% in fiscal year 2006, down from its current 70% year over year level. "As a result, we believe AAPL's trading multiple may compress," Wu said.
ATR said the weaker than expected HDD-based iPod sales could be slightly negative for microdrive and component players, including Agere, Marvell, Seagate Technology, PortalPlayer and Synaptics. However, the firm said better than expected iPod shuffle shipments could benefit SigmaTel, which supplies controller chips for the flash-based players.
While ATR lowered its price target on Apple from $50 to $46, the firm raised its estimates for Apple's next two fiscal years (FY). The firm bumped FY05 estimates from $1.10 to $1.31 and FY06 estimates from $1.25 to $1.45.
Out of the 5.3 million iPods shipped during Apple's March quarter, ATR believes 2 million were iPod shuffles, slightly above guesstimates from research firm PiperJaffray, which said that Apple likely shipped 1.8 million of the flash-based players.
Apple shares tumbled $3.78, or 9.2 percent, to close at $37.26 in Thursday trading on the Nasdaq Stock Market.
Comments
looks like some people got jittery and are profit taking... good opportunity to get in on the game if it hits $35, it should be back up to $45+ by the end of the year with strong new apple products post-tiger, post-wwdc
Apple: We did REALLY well this past quarter, we sold a ton of stuff, increased our profit margins, put a bunch of cash in the giant horde we already have, increased sales in non-US markets. Life is good.
Analysts: Apple can't possibly continue to do well. The stock price is overinflated because everyone expects them to do well, but they won't. (Oh, they'll continue to be profitable, but not AS profitable as everyone secretly expects, so the stock is overvalued.) iPod sales will slow and Apple can't possibly produce any other products that will sell well.
I have got to get me a job like that. Spout flowery babbling and laugh all the way to the bank.
Apple, going bankrupt for over 25 years.
What will these same analysts be saying when Apple introduces dual-core G4 Mac minis, PBooks, iBooks, and eMacs; dual-core G5 iMacs and PMacs, and a dual dual-core top-of-the-line PMac? Oh, and lets not forget the LED projector, iTunes on phones, Airport Express A/V. Oh, and I think they make some software, too; they might sell a couple copies of that. Sheesh.
- Jasen.
P.S. I don't really think Apple will release all those products anytime soon. If their stars line up just right, they could release some of them sooner rather than later, though. But CPU-wise, their stars have a bad habit of not lining up.
In a way it almost looks like insider trading when investors op out before the anouncement.
Well the idea looks really good on paper, but I never supported such a tactic for companies like apple that makes big headlines so often and does not rely on quarterly earnings to generate hype.
Originally posted by Kuku
These days it's almost always like that. Investors like to do short term profit taking. Get in quick and get out quick. Since the guessing game is over so to say, stocks are tumbling.
In a way it almost looks like insider trading when investors op out before the anouncement.
Well the idea looks really good on paper, but I never supported such a tactic for companies like apple that makes big headlines so often and does not rely on quarterly earnings to generate hype.
my bet is on the institutional investors that were so blatantly riding the pre-split hype (remember "Apple and Sony have many synergies" blah blah blah) to push up the price. now, knowing that post-split and post-christmas-quarter things would cool down a bit, you can be sure that they had their profit taking and sell-off planned months in advance
just my conspiracy theory... it's probably true though