Wells Fargo resumes coverage of Apple ahead of 'biggest product cycle' ever
Wells Fargo Securities announced on Wednesday that it will resume coverage of Apple as it expects the 2012 iPhone to drive the "largest product cycle in consumer electronics' history" when it arrives later this year.
Analyst Maynard Um reinitiated coverage in a note sent to AppleInsider, rating Apple as Outperform with a valuation range of $640-660. The investment bank believes shares of Apple are currently undervalued and will see growth after its expected "biggest product launch" in both company and industry history with the next-generation iPhone, which is expected to arrive in October.
"We believe Apple's combination of brand, innovation, and ecosystem are unmatched and see the company as well-positioned to continue to take value share in its core smartphone, tablet, and PC markets," the analyst wrote.
Wells Fargo research has shown that Apple stock jumps 23 percent on average from the date that a new iPhone is launched to the day after earnings results for the handset's first quarter are announced. Um expects Apple's next iPhone to include a "complete form factor redesign" and "true 4G" cellular technology. He believes the handset's launch will be boosted by an anticipated more-rapid carrier rollout than previous years and buzz from the device possibly being one of the last products that late CEO Steve Jobs had a hand in designing.
Apple's iPhone line accounted for 43 percent of its revenue and a whopping 56 percent of its gross profit in 2011, according to Wells Fargo's estimates. The firm believes Apple is on track to continue a "healthy pace" of growth in iPhone unit shipments.
In addition to the iPhone, Um expects Apple's other upcoming products to contribute to growth. He believes a so-called "iPad mini" is on its way, as well as new iMac, Mac Pro and iPod models. A much-rumored "iTV" Apple television set is not expected by the firm until calendar 2013 at the earliest.
An analysis of the TV market by the firm came to the conclusion that Apple could take as much as $50 billion in market capitalization from other television makers if it released its own model. Since the arrival of the iPhone five years ago, Apple has taken large chunks out of mobile phone vendors' market caps, especially those of Research in Motion and Nokia.
Apple is expected to continue to grow market share in the PC market as a result of an increase in "overall consumer adoption" of the company's products, spurred in part by an iPhone and iPad halo.
The analyst also pointed out that Apple has a "cushion" for its gross margins in the form of its product warranty costs. The iPhone maker has apparently been over-accruing product warranty costs as compared to its actual expenditures. If the company experienced downward pressure on its gross margins, it could reduce the amount it accrues and thereby raise its net revenue.
Though Wells Fargo sees Apple in a very strong position, it did mention several potential risks that the company faces. For instance, drop in the average selling price (ASP) of the iPhone due to decreased demand or a reduction in carrier subsidies, could have a drastic impact on Apple's revenue and margins. Apple's growth could also slow because it faces tougher comparisons as a result of the impressive growth it posted in previous quarters.
Other risks highlighted by Um included: evolutionary rather than revolutionary innovation, Apple's numerous legal disputes, the possibility of higher operating expenses, potential for supply constraints and the threat of broader macro-economic slowdown.
Analyst Maynard Um reinitiated coverage in a note sent to AppleInsider, rating Apple as Outperform with a valuation range of $640-660. The investment bank believes shares of Apple are currently undervalued and will see growth after its expected "biggest product launch" in both company and industry history with the next-generation iPhone, which is expected to arrive in October.
"We believe Apple's combination of brand, innovation, and ecosystem are unmatched and see the company as well-positioned to continue to take value share in its core smartphone, tablet, and PC markets," the analyst wrote.
Wells Fargo research has shown that Apple stock jumps 23 percent on average from the date that a new iPhone is launched to the day after earnings results for the handset's first quarter are announced. Um expects Apple's next iPhone to include a "complete form factor redesign" and "true 4G" cellular technology. He believes the handset's launch will be boosted by an anticipated more-rapid carrier rollout than previous years and buzz from the device possibly being one of the last products that late CEO Steve Jobs had a hand in designing.
Apple's iPhone line accounted for 43 percent of its revenue and a whopping 56 percent of its gross profit in 2011, according to Wells Fargo's estimates. The firm believes Apple is on track to continue a "healthy pace" of growth in iPhone unit shipments.
In addition to the iPhone, Um expects Apple's other upcoming products to contribute to growth. He believes a so-called "iPad mini" is on its way, as well as new iMac, Mac Pro and iPod models. A much-rumored "iTV" Apple television set is not expected by the firm until calendar 2013 at the earliest.
An analysis of the TV market by the firm came to the conclusion that Apple could take as much as $50 billion in market capitalization from other television makers if it released its own model. Since the arrival of the iPhone five years ago, Apple has taken large chunks out of mobile phone vendors' market caps, especially those of Research in Motion and Nokia.
Apple is expected to continue to grow market share in the PC market as a result of an increase in "overall consumer adoption" of the company's products, spurred in part by an iPhone and iPad halo.
The analyst also pointed out that Apple has a "cushion" for its gross margins in the form of its product warranty costs. The iPhone maker has apparently been over-accruing product warranty costs as compared to its actual expenditures. If the company experienced downward pressure on its gross margins, it could reduce the amount it accrues and thereby raise its net revenue.
Though Wells Fargo sees Apple in a very strong position, it did mention several potential risks that the company faces. For instance, drop in the average selling price (ASP) of the iPhone due to decreased demand or a reduction in carrier subsidies, could have a drastic impact on Apple's revenue and margins. Apple's growth could also slow because it faces tougher comparisons as a result of the impressive growth it posted in previous quarters.
Other risks highlighted by Um included: evolutionary rather than revolutionary innovation, Apple's numerous legal disputes, the possibility of higher operating expenses, potential for supply constraints and the threat of broader macro-economic slowdown.
Comments
I think the next iPhone is going to blow the doors off all previous iPhone launches. With an expected increase in screen size coupled with 4g/LTE, a huge number of current iPhone users still under contract will go for the gusto and suck up the price to upgrade anyway, many more than normally would. At least that's my opinion.
At the same time those older 4's and 4S's may not carry the expected resale prices that iPhones traditionally have. They certainly won't be as attractive with a completely new form factor on the market. That's of no consequence to Apple of course.
I've seen a few notes lately that iPad sales may not be as robust as might be expected. I have no idea if there's facts behind those comments.
It's apparent this analyst is not looking at Apple's current or potential share of addressable markets in determining the price target.
How do these guys keep their jobs when they can't even project, within any range of reason, Apple projections over the next year? How is that possible?
Much as we like to bag on “analysts,” that all sounds pretty reasonable.
(I bet iPhone 4 and 4s will still sell OK: the years-old iPhone 3G design still sells like hotcakes! And it looks like the iPhone 7—by my count since there were two iPhone 4 versions which even had different placement of side buttons, even prior to the 4s—will be in the same styling family as the iPhone 4/4s, so they won’t really look “old.” Pretty much timeless designs.)
Quote:
Originally Posted by Gatorguy
I think the next iPhone is going to blow the doors off all previous iPhone launches. With an expected increase in screen size coupled with 4g/LTE, a huge number of current iPhone users still under contract will go for the gusto and suck up the price to upgrade anyway, many more than normally would. At least that's my opinion.
At the same time those older 4's and 4S's may not carry the expected resale prices that iPhones traditionally have. They certainly won't be as attractive with a completely new form factor on the market. That's of no consequence to Apple of course.
My iPhone 4 will be coming out of contract at about the time that the new iPhone is projected to arrive. I'd like then to repurpose this device into a connected, portable data acquisition system. I'd take out a data only plan on it and build peripherals using bluetooth. It is already my cycling computer, haven't used a dedicated bike computer for ages.
All the best.
Uh, why did Wells Fargo stop covering AAPL?
I'm only asking because to "resume" something implies that you "stopped" previously.
As an investment bank, you'd think they'd never stop covering the wealthiest company on the planet.
Quote:
Originally Posted by Red Oak
It's apparent this analyst is not looking at Apple's current or potential share of addressable markets in determining the price target.
How do these guys keep their jobs when they can't even project, within any range of reason, Apple projections over the next year? How is that possible?
Apparently, Wells Fargo Securities is the Digitimes of financial prognostication.
Quote:
Originally Posted by Gatorguy
I've seen a few notes lately that iPad sales may not be as robust as might be expected. I have no idea if there's facts behind those comments.
Seems like every Target, Best Buy, and Walmart I visit has 10-20 of the things in stock.
I, for one, think there is a point of saturation for the iPad that is reached much, much earlier than the iPhone.
I don't know what that point is, but the iPad market has to be smaller than the smartphone segment, and thus, saturation in some form is reached with lower per unit sales.
Quote:
I don't know what that point is, but the iPad market has to be smaller than the smartphone segment, and thus, saturation in some form is reached with lower per unit sales.
Not necessarily. Businesses aren't buying iPhones for POS terminals, but they do that with iPads. Hospitals aren't buying iPhones for order entry and charting, but they do with iPads. Schools aren't buying iPhones for their students, but they do with iPads. The iPad opens markets that weren't previously open to buying Apple hardware.
Quote:
Originally Posted by Woodlink
Uh, why did Wells Fargo stop covering AAPL?
As an investment bank, you'd think they'd never stop covering the wealthiest company on the planet.
Exactly. The very fact that they would ever stop covering Apple should make anyone and everyone take whatever they now have to say with a very healthy grain of salt. They apparently didn't foresee Apple's meteoric rise so their "expertise" was pretty much self-disproven.
$660, huh? That's some bold predicting. P/E is compressing once again and once the shock from the last price bump wears off, we're going to $800, easily. Wait until Q4 2012 report come in next January with numbers from the iphone 5 sales on China Mobile.
But, now that Apple is on the verge of blasting past everyone's expectations , again, Wells thinks it can just nose around again and be a voice in Apple's future? No, Wells is a parasite. They'll do NOTHING to help and everything they can to be an overbearing na-sayer.
Pay no attention to these clowns... They know NOT of what they speak...
Quote:
Originally Posted by Woodlink
Seems like every Target, Best Buy, and Walmart I visit has 10-20 of the things in stock.
I, for one, think there is a point of saturation for the iPad that is reached much, much earlier than the iPhone.
I don't know what that point is, but the iPad market has to be smaller than the smartphone segment, and thus, saturation in some form is reached with lower per unit sales.
The iPad users don't move on to a new iPad at contract end time. They sell like laptops, which they are replacing at a great rate.
iPhones are a continuing sales item as users sign a contract extension to get a new iPhone.
Quote:
Originally Posted by AppleInsider
2012 iPhone to drive the "largest product cycle in consumer electronics' history" when it arrives later this year.
That's putting a lot of pressure on Apple to delivery something truly amazing which is a bit unfair.
It's a shame they moved the iPhone from WWDC - it was nice getting a new iPhone at the start of summer every year. I always find October kind of depressing with winter moving in and 3 months of Christmas hype to endure. I still don't understand it - who buys an iPhone for Christmas? An iPhone is the sort of thing people generally buy for themselves in my experience given all the contract complications, etc.
But that's the way analysts work when it comes to Apple. The analysts dream up something that Apple is supposed to be working on and then hype it to the moon, citing unachievable specs and price points. Then, when Apple fails to deliver this stupendous product and only delivers a mind-numbingly great product instead, the stock craters.
It's the standard method of operation when it comes to Apple stock. Hype like crazy, then sell your stock before the actual announcement, then after you've cause the stock to sink from the announcement failing to meet your imagination, buy back in at a lower price. Rinse. Repeat.
I want to do that as well, since my Garmin Oregon 550t is a total piece of crap. Infuriating software for the Mac to boot.
What software do you use on your bicycle? Do you have a waterproof case for it?
Thanks!
With these kind of analysts predictions, sooner or later AAPL will have more cash on hand (rising at rates of 15 eps/Q) than what Wst values the company (P/E compression of some 3 per year). By 2014, cash would equal stock price
In fact, cash-discounted, current P/E of AAPL is lower than in the worst times of Lehman's. That was the time when analysts were predicting the recently launched iPhone to be a complete failure.
Quote:
Originally Posted by Woodlink
Seems like every Target, Best Buy, and Walmart I visit has 10-20 of the things in stock.
I, for one, think there is a point of saturation for the iPad that is reached much, much earlier than the iPhone.
I don't know what that point is, but the iPad market has to be smaller than the smartphone segment, and thus, saturation in some form is reached with lower per unit sales.
And the iPad is more sensitive to the state of the economy than the iPhone, since most people regard a phone as a necessity, while the iPad is a luxury item since most people who buy one already have a desktop and/or laptop.
Once the economy heats up, the iPad sales should climb. Unless Apple discontinues it due to slow sales, lol.
Quote:
Originally Posted by Woodlink
Seems like every Target, Best Buy, and Walmart I visit has 10-20 of the things in stock.
I, for one, think there is a point of saturation for the iPad that is reached much, much earlier than the iPhone.
I don't know what that point is, but the iPad market has to be smaller than the smartphone segment, and thus, saturation in some form is reached with lower per unit sales.
Quote:
Originally Posted by sessamoid
Not necessarily. Businesses aren't buying iPhones for POS terminals, but they do that with iPads. Hospitals aren't buying iPhones for order entry and charting, but they do with iPads. Schools aren't buying iPhones for their students, but they do with iPads. The iPad opens markets that weren't previously open to buying Apple hardware.
yep, what sessamoid said.
Had a doctor appointment yesterday. He came in with an iPad.
Going forward, seems their records are now mostly paperless. Uses DocsToGo, looks up everything online from their LAN.
There are four or five doctors in this medical group. Don't know how many staff also have iPads.
Went to a restaurant; order taken using an iPad. Order goes to kitchen right away, from the table.
Even if the consumer market for iPad might be near saturation, business is now discovering the product, and is leveraging its efficiency.