Pulse Check Update: Analysts Stand by Apple Despite Antennagate

Jul.19.10 | About: Apple Inc. (AAPL)

Several analysts following Apple Inc. (NASDAQ:AAPL) maintained their 12-month price targets after the company’s efforts to address problems with the iPhone 4’s reception, and ahead of Tuesday’s quarterly earnings announcement.

Consumer Reports said on June 12 that it does not recommend users buy the new iPhone 4 because of the antenna problem. Apple CEO Steve Jobs announced Friday that the firm would offer iPhone 4 users free bumpers or cases that would solve the signal loss problem. “This is life in the smartphone world,’ he said. ”Phones aren’t perfect. It’s a challenge for the whole industry. Every phone has weak spots.” (DailyMail)

Piper Jaffray analyst Gene Munster said in a note to investors: “We believe the company adequately proved the antenna issue is an industrywide problem, and the case solution is of minimal cost to Apple.” If Apple offers free cases to every iPhone buyer for a year, Munster estimated, the cost would be close to $178 million, or about 1% of the company’s annual operating income. The iPhone now generates about 40% of the firm’s revenue. (LATimes)

Apple’s stock has taken a beating since the release of the new iPhone, dropping around 8 per cent from record highs just a month ago, reported Dow Jones Newswires. Brian Marshall, an analyst at Gleacher & Co. said ”The stock is incredibly undervalued.”

UBS analyst Maynard Um kept his “buy” rating and $320 price target on Apple’s stock. Um estimates that the bumpers cost $3 each, which means freely distributing them would cut into its fiscal fourth-quarter earnings by 2 cents a share. The company is expected to earn $3.10 a share when it reports fiscal third-quarter results next week. (Investors)

Providing free bumpers or cases to iPhone 4 buyers likely equates to a $45 million pretax charge, or 4 cents a share, said RBC Capital Markets’ Mike Abramsky.

Kaufman Bros analyst Shaw Wu also maintains his”buy” rating for Apple and 12 month price target of $349, calling the problem a mere ”minor blip”. Wu believes the impact is “immaterial” and most investors will likely treat this as a “one time” item.

Clyde Montevirgen at Standard & Poors reiterates a “buy” rating and a $325 price target for Apple. He estimates the cost of the bumpers and any related expenses will cut 4 cents per share this year and 5 cents next year. (IBTimes)

“We believe Apple accomplished its objective of addressing the iPhone 4 antenna issues to its customers and, more importantly, relieving the excitement levels and tension with the press,” BMO Capital Markets analyst Keith Bachman wrote in a research report.

“While we expect the debate to continue, we believe the company’s response should begin to lower the rampant criticism emanating from the media-driven frenzy,” JP Morgan analyst Mark Moskowitz said in a note to clients.

However, Moskowitz called the free cases a “band-aid” for the problem and said a permanent fix was needed, either with this version of the iPhone or a later one. (Reuters)

Toni Sacconaghi of Bernstein Research said and even bigger matter for Apple is “the emerging pattern of hubris that company has displayed,” which has pitted rivals against the company and could end up alienating potential customers and shareholders.(MarketWatch)

Sheena Lee