Apple shares rise on Citi recommendation
Shares of Apple Inc. received a slight boost Monday morning after investment bank Citigroup added the company to its "Top Picks Live" list and reiterated a Buy rating on the badly beaten stock.
"Top Picks Live is a dynamic list of CIR’s highest conviction ideas through calendar year-end which was introduced in January 2008," analyst Rich Gardner explained in a research note to clients. "Apple is the first addition to the list by the PC & Enterprise Hardware team."
In his note, Gardner vouched his belief that the affects of much publicized first-quarter iPhone and iPod production cuts (1, 2) are already reflected in the company's share price, which has fallen some 37 percent since the start of the new year.
"Several sell side analysts have recently cited cuts to March quarter build plans for both iPod and iPhone," he wrote. "We believe that these cuts did occur and that March quarter iPod and iPhone build plans are both below the current sell-side consensus."
For the quarter, the analyst said checks now suggest an iPod build plan of 9 million units will ultimately lead to sales of 10 million revenue units, slightly below sell-side consensus estimates of 10.9 million units. Similarly, iPhone build plan checks imply 1.0 to 1.2 million units, about half a million units shy of the 1.7 million sell-side consensus estimates.
"While March quarter iPod and iPhone build plans are below sell-side consensus numbers, we believe that this is well understood and expected by the buy-side," Gardner said in supporting his Buy recommendation. "At this point, we do not believe 10 million iPod revenue units and 1-1.5 million iPhone units during the March quarter would constitute a surprise to investors. In addition, we believe that iTunes movie rentals will provide an incentive for current iPod users to upgrade to a video-capable iPod as rental content on the site grows throughout the year."
The analyst blames most of the iPod's perceived under-performance in the US market as of late on poor uptake of the the entry level iPod shuffle, which hasn't seen a material revision in well over a year.
"While virtually 100 percent of the unit shortfall was in the low-end iPod Shuffle, allowing Apple to beat consensus iPod revenue despite the unit shortfall, the Street was rightfully concerned about the lack of unit growth," he wrote. "We believe the unit shortfall reflected the lack of a compelling update to the Shuffle product last Fall; the Shuffle simply was not the compelling 'stocking stuffer' this year that it was last year."
Going forward, Gardner said Apple will have to provide compelling reasons for US iPod users to upgrade in order to keep the domestic business from declining. However, the analyst had a slightly different view of the company's scaled back iPhone orders.
"While iPhone shipments are likely to be weak during the March quarter, we believe this partly reflects channel inventory draw down ahead of the launch of a 3G iPhone within 1-1.5 quarters," he explained. "The introduction of 3G along with price cuts and additional carrier relationships in Europe should give investors increased confidence in Apple’s stated target of 10 million iPhone unit shipments during calendar year 2008.
Gardner holds $212 price target on shares of Apple.
"Top Picks Live is a dynamic list of CIR’s highest conviction ideas through calendar year-end which was introduced in January 2008," analyst Rich Gardner explained in a research note to clients. "Apple is the first addition to the list by the PC & Enterprise Hardware team."
In his note, Gardner vouched his belief that the affects of much publicized first-quarter iPhone and iPod production cuts (1, 2) are already reflected in the company's share price, which has fallen some 37 percent since the start of the new year.
"Several sell side analysts have recently cited cuts to March quarter build plans for both iPod and iPhone," he wrote. "We believe that these cuts did occur and that March quarter iPod and iPhone build plans are both below the current sell-side consensus."
For the quarter, the analyst said checks now suggest an iPod build plan of 9 million units will ultimately lead to sales of 10 million revenue units, slightly below sell-side consensus estimates of 10.9 million units. Similarly, iPhone build plan checks imply 1.0 to 1.2 million units, about half a million units shy of the 1.7 million sell-side consensus estimates.
"While March quarter iPod and iPhone build plans are below sell-side consensus numbers, we believe that this is well understood and expected by the buy-side," Gardner said in supporting his Buy recommendation. "At this point, we do not believe 10 million iPod revenue units and 1-1.5 million iPhone units during the March quarter would constitute a surprise to investors. In addition, we believe that iTunes movie rentals will provide an incentive for current iPod users to upgrade to a video-capable iPod as rental content on the site grows throughout the year."
The analyst blames most of the iPod's perceived under-performance in the US market as of late on poor uptake of the the entry level iPod shuffle, which hasn't seen a material revision in well over a year.
"While virtually 100 percent of the unit shortfall was in the low-end iPod Shuffle, allowing Apple to beat consensus iPod revenue despite the unit shortfall, the Street was rightfully concerned about the lack of unit growth," he wrote. "We believe the unit shortfall reflected the lack of a compelling update to the Shuffle product last Fall; the Shuffle simply was not the compelling 'stocking stuffer' this year that it was last year."
Going forward, Gardner said Apple will have to provide compelling reasons for US iPod users to upgrade in order to keep the domestic business from declining. However, the analyst had a slightly different view of the company's scaled back iPhone orders.
"While iPhone shipments are likely to be weak during the March quarter, we believe this partly reflects channel inventory draw down ahead of the launch of a 3G iPhone within 1-1.5 quarters," he explained. "The introduction of 3G along with price cuts and additional carrier relationships in Europe should give investors increased confidence in Apple’s stated target of 10 million iPhone unit shipments during calendar year 2008.
Gardner holds $212 price target on shares of Apple.
Comments
Consumer spending data is coming through the pipes this week. Will it be good news? Or will it be a disaster. It's pretty dumb to be buying AAPL at these prices, since it should be priced in between $85 and $95 in light of current and near-term economic conditions.
That's what you think. $85 is WAY too low, I can't imagine it hitting that point unless a meteor hits Cupertino.
So how much have you made shorting AAPL?
That's what you think. $85 is WAY too low, I can't imagine it hitting that point unless a meteor hits Cupertino.
So how much have you made shorting AAPL?
Um if you still haven't heard we are in a recession right now...all retailers are suffering and Apple will suffer in the coming months too. There just aren't enough fanboys to keep sales afloat. Regular people who buy ipods every now and then or switchers are going to delay their purchases. Apple is going to keep dropping if the economic climate keeps deteriorating. Gadget companies suffer in recessions.
I agee the stock will drop below 100 this year. Then it will be a good time to buy.
Um if you still haven't heard we are in a recession right now...all retailers are suffering and Apple will suffer in the coming months too. There just aren't enough fanboys to keep sales afloat. Regular people who buy ipods every now and then or switchers are going to delay their purchases. Apple is going to keep dropping if the economic climate keeps deteriorating. Gadget companies suffer in recessions.
I agee the stock will drop below 100 this year. Then it will be a good time to buy.
I'm aware of the state of the US (and world) economy. I just don't agree.
Time will tell who is right.
Consumer spending data is coming through the pipes this week. Will it be good news? Or will it be a disaster. It's pretty dumb to be buying AAPL at these prices, since it should be priced in between $85 and $95 in light of current and near-term economic conditions.
Apple appears to be in pretty good shape to weather a recession. Huge amounts of cash on hand, products diversified among various electronics/computer market segments, and a devoted customer base. If they play their cards right (and they seem to have been doing so lately), they could come out of the recession having picked up top talent and way ahead in R&D.
I'm just not sure why anyone would sell much, or what other companies they think would be a better bet in the long term.
Um if you still haven't heard we are in a recession right now...all retailers are suffering and Apple will suffer in the coming months too. There just aren't enough fanboys to keep sales afloat. Regular people who buy ipods every now and then or switchers are going to delay their purchases. Apple is going to keep dropping if the economic climate keeps deteriorating. Gadget companies suffer in recessions.
I agee the stock will drop below 100 this year. Then it will be a good time to buy.
if it drops
It wouldn't be a surprise if AAPL goes to 135 this week but what happens after that is anyone's guess.
Options expiry and hedge fund repemptions both happen Friday. Options Max Pain for AAPL is at 135. That's the price at which options managers would have to pay out the least amount of money. AAPL happens to be doing very well today, exceeded only by RIMM on this chart:
It wouldn't be a surprise if AAPL goes to 135 this week but what happens after that is anyone's guess.
Im amazed RIMM is still going strong, wont be long till that ship sinks.
That's what you think. $85 is WAY too low, I can't imagine it hitting that point unless a meteor hits Cupertino.
It was at $83 just a year ago. And that was after the iPhone was announced, and at the heights of economic activity. The iPhone, while selling well, is tapering off in the U.S., and is missing expectations in some international markets, and will not be sold in key markets for a long while, such as China. Apple's latest and greatest product is the Cube 2.0, an expensive peripheral gadget with limited mass-appeal and limited niche-appeal. Apple has been a strong consumer-spending company, but that was only recently the case, which happened to coincide with the largest credit bubble in history, which is in the process of exploding. Home prices are falling, home inventories and months of inventory are increasing, and equity-leveraged ATMs are going away.
$85 per share is a tad optimistic considering the circumstances.
It was at $83 just a year ago. And that was after the iPhone was announced, and at the heights of economic activity. The iPhone, while selling well, is tapering off in the U.S., and is missing expectations in some international markets, and will not be sold in key markets for a long while, such as China. Apple's latest and greatest product is the Cube 2.0, an expensive peripheral gadget with limited mass-appeal and limited niche-appeal. Apple has been a strong consumer-spending company, but that was only recently the case, which happened to coincide with the largest credit bubble in history, which is in the process of exploding. Home prices are falling, home inventories and months of inventory are increasing, and equity-leveraged ATMs are going away.
$85 per share is a tad optimistic considering the circumstances.
So, you are basically saying that they should have a PE of 14 (after cash/short term investments are discounted from stock price) on the worst earnings projections is OPTIMISTIC?! Even CSCO which has much worse prospects is trading at 21x after cash and st investments!
In that 12 months, Apple has added about $6/share to its coffers. Growth might be flat this year if the economy gets as bad as the bears are trying to make it, but where I sit most of the pain is really in the financial sector and not the broader economy.
The Apple stores are still crowded (not packed, but crowded), and people are still buying. March won't be a stellar quarter compared to last year, and it would be nice to see either a dividend or an acquisition, but AAPL is priced pretty reasonably right now for the macro economic risk factors. When Europe starts feeling the pain then I can see AAPL dropping below 120 again, but much worse than that seems quite unfounded.
So, you are basically saying that they should have a PE of 14 (after cash/short term investments are discounted from stock price) on the worst earnings projections is OPTIMISTIC?! Even CSCO which has much worse prospects is trading at 21x after cash and st investments!
In that 12 months, Apple has added about $6/share to its coffers. Growth might be flat this year if the economy gets as bad as the bears are trying to make it, but where I sit most of the pain is really in the financial sector and not the broader economy.
The Apple stores are still crowded (not packed, but crowded), and people are still buying. March won't be a stellar quarter compared to last year, and it would be nice to see either a dividend or an acquisition, but AAPL is priced pretty reasonably right now for the macro economic risk factors. When Europe starts feeling the pain then I can see AAPL dropping below 120 again, but much worse than that seems quite unfounded.
I agree that at a p/e of 14, AAPL would be extraordinarily cheap. In addition, some analysts
feel that the p/e understates the value of AAPL, due to the fact that they are now receiving
a material amount of deferred income. Free cash flow, another way of valuing a company,
is massive.
$85 per share is a tad optimistic considering the circumstances.
Consumer spending data is coming through the pipes this week. Will it be good news? Or will it be a disaster. It's pretty dumb to be buying AAPL at these prices, since it should be priced in between $85 and $95 in light of current and near-term economic conditions.
Guess you'd better get your story straight!
aaarrrgggh, you are 100% correct. It is inconceivable that AAPL would be trading at a P/E of around 14.
g3pro you have absolutely no idea what you are talking about.
g3pro, your posts have become very tiresome.
Yeah, I guess we need more unwarranted masturbation fantasy regarding AAPL:
"OMG, iPHone is awesome!!! $250/share is WAAAAY TOO CHEAP! IT'S A BARGAIN AT $175!!!!!!11"
Um if you still haven't heard we are in a recession right now...all retailers are suffering and Apple will suffer in the coming months too.
There hasn't been a confirmed recession. People think there is/may be one soon, but it's not certain.
I think retail did grow in the last quarter, despite warnings otherwise. That growth was small but it wasn't negative, I think about 1%. While the economy is not necessarily strong, I'm not sure of a recession.
The iPhone, while selling well, is tapering off in the U.S.,
Do you have proof of this "tapering off", or is this supposition on your part?
Apple's latest and greatest product is the Cube 2.0, an expensive peripheral gadget with limited mass-appeal and limited niche-appeal.
Even if it's not a hit, that doesn't hurt the rest of Apple's product line.
Apple has been a strong consumer-spending company, but that was only recently the case, which happened to coincide with the largest credit bubble in history, which is in the process of exploding.
It already exploded last quarter, which was also Apple's best quarter ever.
Um if you still haven't heard we are in a recession right now...all retailers are suffering and Apple will suffer in the coming months too. There just aren't enough fanboys to keep sales afloat. Regular people who buy ipods every now and then or switchers are going to delay their purchases. Apple is going to keep dropping if the economic climate keeps deteriorating. Gadget companies suffer in recessions.
I agee the stock will drop below 100 this year. Then it will be a good time to buy.
I think AAPL has strategically positioned itself to not be a part of the price-sensitive PC market that relies on very tight margins. Apple is perceived as a premium brand and a lifestyle choice for consumers... both things are far less susceptible to the ups and downs of our economy. Yes, the stock is down right now, but unfairly, since Apple just reported their best ever quarter, and the slowdown in the economy should touch them with far less effect than a Dell or HP.
I think AAPL has strategically positioned itself to not be a part of the price-sensitive PC market that relies on very tight margins. Apple is perceived as a premium brand and a lifestyle choice for consumers... both things are far less susceptible to the ups and downs of our economy. Yes, the stock is down right now, but unfairly, since Apple just reported their best ever quarter, and the slowdown in the economy should touch them with far less effect than a Dell or HP.
This has been my thought for quite some time and it amazes me that so many people on these forums want Apple to compete in thin-margin products.
If it is true that many of Apple's products are for people with "more money than brains" as is frequently posted, then an economic downturn should effect Apple substantially less than a company looking to sell $500 PCs to people forced to choose basic living expenses over even a somewhat-required-these-days computer.