Risks Remain, But iPhone's Fundamentals Should Help Apple Surpass Expectations - RBC Analyst

Although the near-term outlook for consumer spending doesn't fare too well for Apple Inc. (AAPL), the company is well positioned for long-term leadership in the smartphone space, according to RBC Capital Markets analyst Mike Abramsky.

While global smartphone shipment growth is expected to slow from 52% to 21%, the company's iPhone and its strong fundamentals will certainly help to surpass expectations over the next two years.

Despite Apple's valuation having corrected to 19 times its forward price-earnings ration as well as a mix of compelling products and PC Share gains, risks remain, Mr. Abramsky said. Deteriorating consumer spending environment, premium price points for Macs, some possibly mismatched to tightening budgets, and margin risks could all affect Apple's performance.

As a result, iPhone estimates are being trimmed. Mr. Abramsky expects Apple to sell 27.8 million units in fiscal 2010, down from 31.8 million, while yielding $46-billion (prior $46.6-billion). Mr. Abramsky maintains a "sector perform" rating with a $125 price target on the stock.

Comments

[ironpants:]

He's just one of a handful of so-called 'experts'.

Analysts are ruining the market.

2008 Nov 13 05:58 AM

[Ranchr:]

The only numbers that count is the number of shoppers in the Apple Stores. I check the pulse in 4 stores within 90 minutes of my Sarasota area home in Florida. I have also visited three stores in England plus stores in New York and California. In the past weeks I have visited stores in Brandon and Naples, Florida. Last night, the store at the International Plaza in Tampa. Last night, the store in Tampa was packed at 5:30 and Nordstrom and Neiman Marcus were almost empty. Last Sunday the were over flowing, in Tampa. Before they spout off these analysts need to go check the numbers that count. Apple is the only bright spot in a lot of dead malls.

2008 Nov 13 08:21 AM

[Jon T:]

It is no wonder the banking system crashed if this is the quality of their advice and analysis....

Heaven help us all...

2008 Nov 13 08:55 AM

[Kevin_S:]

Companies that make a lot of cash even in weaker market - AAPL, INTC, MSFT, PFE, SBUX, MCD, .... so you don't really lose any money if you hold those stocks. When the market begins to turn, you can't buy them cheap anymore.

2008 Nov 13 09:22 AM

[top_tier:]

Analysts will continue to not be taken seriously when then pump worthless projected forward PE ratios. Everyone knows that non GAPP accounting is the only worthwhile metric for AAPL. iPhone revenues are accounted for over a two-year period. How many times does this have to be drummed into dense analyst heads? Try looking at cash flow for crying out loud.

How many times do analysts have to be taken to the woodshed after AAPL comes out with quarterly numbers that make their prognostications laughable.

In a nutshell there's plenty of analyst scammers out there trying to spin a negative bent on AAPL. Can we just cut through the BS and recognize that most people "get it".

2008 Nov 13 09:26 AM

[peter02l:]

He is way off on Apple's forward PE. It's about 13.5 not 19.

What kind of math is he using here? "Mr. Abramsky expects Apple to sell 27.8 million units in fiscal 2010, down from 31.8 million, while yielding $46-billion (prior $46.6-billion)."

So a drop of 4 million units corresponds to a drop of only $600 million? So the last 4 million will be offered at $150 to AT&T? He doesn't mention a price per unit decline.

2008 Nov 13 09:30 AM

[peter02l:]

@top_tier,

True. If you subtract the cash the forward PE drops under 10. If you use non-GAAP, it will go even lower (around 6).

2008 Nov 13 09:44 AM

[David Lentz:]

Ranchr -- I agree most emphatically. Here in the Ohio Valley, I visited the Keystone Apple Store a couple of days after the new Macbook roll-out. The rest of the (upscale) mall was deserted, with the Apple Store being the only place with any customers at all.

That said, the traffic at this particular Apple Store on that particular day was the lowest I have ever seen, with about 2/3 to 3/4 of the floor space being unoccupied (as opposed to the 10%-20% that is the norm). Not many were exiting the store with purchases. I plan to check again on Black Friday.

My guess is that Apple will see a modest (25%, maybe 35% worst-case) drop off in sales volume on a year-over-year basis in the next two quarters. That will move it even farther away from the rest of the consumer electronics field, as nearly all of the rest are going to be struggling to turn a profit. And I suspect that Apple's emphasis on the consumer, rather than the corporate markets, is going to serve them well, as I doubt that ANY corporations are going to be refreshing their PCs for a couple of years. Consumers will do the irrational thing and blow their last paycheck (literally) on iPhones. HPQ is gonna get hurt, big-time. And Dell just might be extinguished.

2008 Nov 13 10:12 AM

[mollytjm:]

the King of Prussia, PA apple store is doing a robust business and that will pick up even more over the holidays... they do well even when the rest of the (huge) mall is dead. i know so many people planning on buying iphones or touches for the holiday season...it'll be interesting to see the numbers when it's over but Apple will definitely survive the economy trials and do well.

2008 Nov 13 10:41 AM

[jocca:]

Why should people listen to these anal-ysts? Just drop in any Apple store and draw your own conclusion. They are packed even on weekdays!!!!!I went to the Sacramento store to check out the new laptops. The crowd of people standing around the new MBs and MBPs was ridiculous. I had to wait a while before I could get a chance to pick up and test out one of them. I think Apple will do very nicely this holiday.

2008 Nov 13 11:16 AM

[Constable Odo:]

It doesn't matter what the analysts say or project. When the time comes to announce earnings and Apple beats sales predictions, then all's well and good. Unfortunately, whether Apple sells twice as many iPhone, iPods or notebooks as projected, all it's going to do is increase Apple's cash reserve. Investors won't see much of a share price rise because Apple can't disconnect from the rest of the tech stocks in the market. The company will still be considered by Wall Street as a high-tech toy company until Apple creates something that will earn it some respect in the world of business.

Apple will most likely have a slight fall in sales but assuredly do far better than the rest of the computer and handset companies this holiday, and I guess that will have to be sufficient. I doubt if there are very few analysts that ever leave their office. Maybe they just use the telephone to get the feel of sales. Maybe they just watch the news channels on TV. Most likely they just draw assumptions based hearsay. I'm rather puzzled why Apple stores stay crowded when the rest of the mall isn't and yet Apple still falls into the category of getting less projected sales.

Yet another year gone with no China iPhone sales. Not that they can actually be depended upon for buying massive quantities of iPhones in the future as everyone hopes.

2008 Nov 13 11:10 PM