Apple Still Overvalued - RBC

RBC Capital Markets analyst Mike Abramsky thinks Apple Inc. (AAPL) shares have gotten a little ahead of themselves and continues to caution investors from taking a bite, despite his forecast for the iPhone maker to report a pretty good second quarter on Wednesday.

Mr. Abramsky said in a note to clients:

Valuation has risen faster than peers (now 25x vs. Nasdaq at 15x, PC/wireless peers at 10 - 18x), and while we expect near term upside around the refreshed iPhone, we continue to see elevated challenges ahead to valuation from slowing momentum, margins, and leadership uncertainty, and prefer to wait on the sidelines, seeking more attractive entry points.

Maintaining his "underperform" rating, but raising his price target from $70 to $95, he said his thesis would change if he saw signs of an upturn in future demand and heard news of a new product or innovation that would offer another growth cycle above expectations.

The analyst said he would also like to see some resolution of near-term uncertainty over Apple's leadership.

As for Wedneday's second quarter earnings results, Mr. Abramsky says earnings should beat the Street on higher revenues and gross margins as slowing business for MAC personal computer is offset by stable results for iPods and iPhones. Future guidance, he added, will remain conservative "with visibility remaining low to consumer spending trends and no expected product launches.

Comments

[Paul Clisby:]

Mike Abramsky. Worst financial analyst ever, or disreputable schill?

Wouldn't mind so much if he at least had the decency to make full disclosure on the RBC/RIMM boardroom links.

Apr 21 04:49 AM

[Steeevo:]

Abramsky. Transparent Abramsky.
Just a little embarassing.

At least most people know about him now and he can be safely ignored - for any of his analysis on AAPL and RIMM.

Apr 21 05:03 AM

[Murphy Mac:]

Before the Internet people like Abramsky could hide. He's been outed. Now he needs to be investigated.

Apr 21 09:08 AM

[Roy Flande...:]

Yep! Good old "Cutting Edge" Abramsky is at it again. (As I recall some wise man out there said Abramsky is about "as cutting edge as a wet roll of toilet paper...") Interesting also, in that you can also pick up a small "tell" on one's particular tech bias, depending on how they spell that particular computer from Apple: If they tend to use a Windows PC, and they also tend to "badmouth" or even short Apple, they will almost always spell it, "MAC."

If on the other hand they happen to use that particular "computer," and/or be unbiased, (I know- that gave me away; darn!) or God forbid, be positive and even Long, they spell it, "Mac."

You say you think I'm starting to talk like Andy Rooney. That's fine with me, MAC!

Apr 21 09:13 AM

[Roger Knights:]

"Valuation has risen faster than peers (now 25x vs. Nasdaq at 15x, PC/wireless peers at 10 - 18x)"

25x fails to take into account the deferred earnings from the iPhone.

Apr 21 09:19 AM

[.crazylegs..:]

I can't believe this guy still has a job!

P/E calculations are meaningless for Apple. Follow the cash flow numbers. That is the only thing an investor should care about. Apple earned $10/sh of FREE cash flow last year.

Apr 21 10:02 AM

[Timeline St...:]

Poor poor Mike Abramsky. He was wrong a-BOOT Apple.

Just think, if...er....when Apple reaches $140 this year, he will have recorded a perfect 100% margin of error.

Mike, please stick to tar sand modeling and moose counting and keep way from the tech stocks, eh?

Apr 21 10:13 AM

[realitybytes:]

Abramsky has proven himself completely clueless and if you Google his past statements for the last 2 years, he's about 86% wrong, the other 14% is just dumb luck.

I think that Asshat "Cutting Edge" Abramsky is a completely appropriate name for this idiot.

Apr 21 10:25 AM

[Constable Odo:]

A target price of $95 for Apple and $106 target price for RIM?!!! I suppose RIM is a more preferable company for investors, but Abramsky is really dumping all over Apple. Deferred iPhone revenue is too complicated for most investors to grasp and it really just smooths out Apple's revenue over several years. It appears no one is impressed by Apple's cash hoard, either. It's so strange that money in the bank doesn't mean anything in these times.

But the iPhone/iPod Touch SDK is simply awesome. Developers love it and users love the apps and games. That software accessible dock connector will be exploited by all those companies in the vast iPod ecosystem. It can only continue to drive iPhone and iPod Touch sales. The future tablet is also likely to use Apple's iMobile platform and will likely steal away Kindle sales. I think Apple should have a target price of at least $130. The one billionth app should be downloaded by Friday and that'll be some celebration to spur even more iPhone/iPod Touch sales.

As an Apple fanboy I'm looking for good things to come of products and Apple share price. $95?!! You gotta be kidding.

Apr 21 11:55 AM

[dragon10:]

WOW He blow me with 35.714% up

Apr 21 03:56 PM

[Infinite loop:]

This pretty much proves the uselessness of P/E's and analysts, now doesn't it. Considering AAPL has risen 40 points in the past month. Keep following those fundamentals guys, I'll follow the emotions and make a killing.

Thanks.

Apr 21 10:19 PM

[Neil Anderson:]

MAC = Media Access Control, an assigned unique serial number to deliver data packets to a network destination.

Mac = a computer made by Apple.

Apr 22 12:25 AM

[Techtrader10:]

A guy using the nickname "Investor Sajal" made a good analysis at Seeking Alpha, as to why Apple is moving from a "growth stock" to a "value stock". The $26 billion the company has in cash reserves would be better used in the form of a dividend rather than sitting in a bank account at 2-2.5 percent interest (certainly not a good use of the money). As Sajal pointed out, Apple has reached the same point in maturity as companies like Microsoft, Google, and Amazon. There just isn't that much more growth left for the stock. It's trading at more than 22x potential 2010 earnings, and the go-go days of the stock are over. It's always hard for the investors to let go of the stock that made them big money, but with the economy ambushing the stock, there may be no choice.

Apr 22 11:22 AM

[Ricard:]

The analyst showcased in this article is off the mark regarding product development, IMHO. Apple has in the IPhone something that far outstrips the IPod in innovation, profitability, and appeal, and the IPod was already a phenomenally successful product. It's easily conceivable that Apple could modulate the features in the IPhone (maybe an IPhone Slim, or etc) and continually make breakthrough sales with this one product, much like it did for several years with the IPod. I don't see an immediate need for something down the pipeline.

Apr 22 02:11 PM

[jkerviel:]

Good call Abramsky. It's about time someone tried to inject a little reality into this Apple mania. Have these people never heard of Linux ?

Apr 22 02:23 PM

[realitybytes:]

Asshat "Cutting Edge" Abramsky...Appropriately named, essentially and factually incorrect all of the time...
Apple at 164.00
Good call Asshat!

Jul 31 12:35 PM