Apple: There's Still Upside, Near-Term Unclear

Yesterday was a good day for Apple (AAPL) with the annual Macworld Expo in full swing, but does the hype overshadow consumer weakness and questions about first-half guidance?

Analysts predict a modest boost from a round of new Macs and a peek at Snow Leopard, Apple's latest operating system, and a few were encouraged by Monday's health update from Steve Jobs. Analysts at Kaufman Bros. said that Phil Schiller's keynote at the event will be a positive catalyst, and new products could "perhaps accelerate its strong Mac momentum." Yesterday Oppenheimer upgraded Apple following a Dec. 17 downgrade on uncertainty over Jobs's health. Apparently his announcement that he's suffering from a "hormone imbalance" gave analysts enough information to restore faith in management's continuity.

Most agree there's still upside for Apple, but is the near term that is still unclear. Kaufman's Shawn Wu says Apple's Mac OS X operating system that powers Macs and iPhones saw faster market share gains in December, which is an obvious long-term positive. But how does that stack up against, for example, Best Buy's (BBY) announcement it is selling refurbished iPhones for $50 less than new ones, and the ongoing wait for a cheaper version of the iPhone?

Yeterday, BMO Capital Markets analyst Keith Bachman saw "continued weakness in consumer and educational buying trends" and cut his price target from $120 to $108 before MacWorld's keynote. He says: "We note that Apple, like many of our stocks, currently benefits from negative sentiment, and recognition by buy-side investors that current Street estimates are too high. However, we don't think Apple will trade well between Macworld and its earnings conference call, with realistic concerns about March quarter guidance. We believe that buying the stock owing to weakness from guidance will prove profitable, given that Apple is typically overly conservative."

Bachman lowered his fiscal '09 earnings estimate to $4.60 from $5.11, below consensus of $5.12. He lowered revenue estimates for the March quarter, predicting Apple will guide to $7.1 billion to $7.5 billion on earnings of 75-85 cents a share. Consensus is $8.4 billion and $1.15 a share. That's a big gap, and the thinking goes that until Apple clarifies its guidance shares could wobble. He writes, "We believe the magnitude of the difference between March-quarter guidance and current Street estimates is likely to pressure shares in the short term."

Comments

[sfhc21:]

I believe analysts said the same thing about Q4 '08...weakness in the educational market. And Apple still had a record quarter in computer sales. $4.60 for '09 is ridiculous...especiall... considering all the built-up iPhone revenue. Bachman will be exposed for the fool he is, just like Huberty.

Jan 07 09:37 AM

[Zoltan L. K...:]

"how does that stack up against, for example, Best Buy's ... selling refurbished iPhones for $50 ... and the ongoing wait for a cheaper version of the iPhone?"
Well, it would be of advantage to think strategically or at least from a marketing standpoint. There is unmet demand for iPhones and there is a potential to differentiate the product, and to offer it at different price-points. This is the dynamic of poduct life cycles, and the iPhone is still an innovative new product.
To valuation: what about 1/3rd of market value being cash and the rest beeing growth potential? The future cash generated by the current business is valued at zero.

Jan 07 10:47 AM

[2bitRick:]

Pray tell why anyone would listen to any of these so called experts?
Has not Shawn Wu and his ilk shown us what they truly know, nothing. After following these posts for some time now I have come to the realization that anyone who predicts the future price of Apple's stock or what Apple should, would come out with is
FULL OF CRAP
I can get better advise from my cat.

Jan 07 11:40 AM

[Roger Knights:]

If the January report features strong earnings for the Dec. quarter, as I anticipate (or hope, anyway), but their guidance for the next quarter is below the Street's, that wouldn't necessarily depress the stock. That's because Apple would have given inaccurately low guidance for the December quarter, and people would discount their March guidance as being similarly overly conservative.

Jan 07 02:54 PM

[Infinite loop:]

It's called Information Bias. Analysts (and most everyone else) think that if they know everything there is to know about a company that will improve their odds of winning....WRONG!!!!

Your odds will ALWAYS be 50/50 no matter how much information you take in. It's the Gamblers Fallacy, and people that follow these analysts are the suckers that fall for it every time.

Fools and their money are soon parted.

Jan 08 10:56 AM