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Investors Lower Price Target for Apple as Company’s Growth Slows

Apple Headquarters at Infinite Loop, Cupertino, California | Wikipedia

Apple Headquarters at Infinite Loop, Cupertino, California | Wikipedia

Although Apple is growing, its slow pace is not what the investors are expecting. Because of this, investors were prompted to lower their price targets for the iPhone maker’s stock.

The price target revisions were issued after the company reported its record earnings during last year’s holiday quarter. But despite riding high on iPhone and iPad sales, the AAPL stock went down over 10 percent in after-hours trading.

In relation to this, Apple Insider made a rundown of stock analysis from various firms regarding Apple’s decrease in stock trade.

Piper Jaffray

Analyst Gene Munster believes there are three main reasons why the stock traded down after hours on Wednesday:

  • iPhone units were below buy-side expectations of about 50 million.
  • Apple’s new guidance methodology, employed for the first time on Wednesday, does not appear to leave room for “wild upside.”
  • Based on the latest guidance, it’s likely that gross margins will be down sequentially in March.

Because of the new gross margin guidance, Munster has reduced his projected calendar year 2013 revenue for Apple by 4 percent to $196.4 billion. He’s also reduced his price target for AAPL stock from $875 to $767, but maintained an “overweight” rating.

JMP Securities

Alex Gauna has been known for a bearish outlook on Apple even in the company’s best quarters. Following this week’s results, he maintained JMP’s “market perform” rating on the company’s stock. According to him:

We remain fundamentally neutral on the stock which we see as caught between the merits of its dividend yield that is approaching 2.5% and the risks to forward growth stemming from intensifying levels of competition, management changes, and execution miscues.

Canaccord Genuity

Michael Walkley believes Apple has a strong product pipeline that will reaccelerate the company’s year-over-year earnings growth during the June quarter. The firm has reiterated its buy rating, but lowered its price target to $650.

Walkley believes Apple’s “soft” guidance for the March quarter is a result of ramping supply of the iPhone 5 during the December quarter, along with what he believes could be an earlier-than-expected product transition for the iPhone in the first half of 2013.

RBC Capital Markets

Amit Daryanani believes Apple is “bent, not broken.” He said this week’s results are a sign that Apple is executing well as they shift to becoming what he called a “normal growth company.” But RBC has trimmed its price target for AAPL to $600, down from $725. The firm has maintained its “outperform” rating.

Evercore Partners

Apple may be slowing, but the company is still growing, analyst Rob Cihra said. He has maintained an overweight rating for AAPL, but trimmed his price target from $750 to $675.

We continue to see Apple effectively creating its own growth through innovative hardware+software engineering in a sea of otherwise commodity products, but now needing to digest the law of large numbers. Perhaps foremost, Apple’s M.O. to date has been to cream the high-end off each market, but as the company’s grown it may now need to target more of the mainstream.

Deutsche Bank

Chris Whitmore isn’t surprised that Apple’s guidance for the March quarter was soft. But with the company at a “critical junction,” he’s reduced his price target to $575.

He believes Apple would be better served to introduce a lower-priced iPhone, which would allow the company to adopt what he called a “good, better, best” segmentation strategy.

In addition to prepaid markets, Whitmore believes there is substantial growth for Apple in larger form factor smartphones with screens larger than 5 inches.

J.P. Morgan

Mark Moskowitz believes Apple’s fundamentals and investor expectations continue to diverge. As such, he was “surprised” by the “sharp correction” that the company’s stock took in after-hours trading on Thursday. Moskowitz has reiterated J.P. Morgan’s overweight rating for AAPL with a December 2013 price target of $725 holding fast. He said:

Without splitting hairs too much, we think the new guidance commentary is not much of a change and could restore beat-and-raise potential to the model.

Moskowitz also believes the iPhone growth story is “far from over,” particularly if supply constraints ease quicker than expected and LTE network expansion continues across the globe.

ISI Group

Brian Marshall admitted he has taken a “hatchet” to his calendar year 2013 estimates for Apple. His new earnings per share estimate for the company’s calendar year 2013, for example, was cut 15 percent from $50 to $42.50.

Marshall believes that a lower-priced iPhone geared toward developing markets is “paramount to financial re-acceleration” for Apple. He believes Apple could sell an iPhone with a wholesale price of about $300 while still maintaining gross margins around 40 percent. According to him:

We believe the end result would be price elasticity kicking in and driving a new phase of revenue/earnings re-acceleration, and AAPL shares would likely get their ‘mojo’ back.

Morgan Stanley

Katy Huberty reiterated her overweight rating for Apple, calling the company’s medium-term risk-reward an attractive option for investors. However, near-term catalysts for the company are limited, she admitted, as Apple faces tougher comparisons in the first quarter of calendar 2013. As a result of this, Morgan Stanley has removed AAPL stock from its “Best Ideas” list for investors.

Huberty believes catalysts for Apple will begin in the company’s June quarter, including an anticipated iPhone refresh, new iPads, and expanded carrier partnerships. She also noted that every $5 billion in share buyback conducted by Apple is expected to reduce the share count by 1 percent.

Needham & Co.

While most analysts have cut their price targets, Charlie Wolf reiterated his $750 target this week following Apple’s earnings. He will, however, review the target in February, opting to not react immediately to the company’s earnings.

But Wolf did reduce his fiscal 2013 earnings estimate to $45.70 billion, citing supply constraints on several products that have “put a damper on revenue growth.” As he pointed out:

The ongoing risk in the Apple story continues to be whether the company can innovate at the same pace and with the same disruption that occurred during the Steve Jobs era as CEO. The price action of the stock following the release suggests the market does not believe it can.

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