With a new story about possible options misdeeds at Apple Computer (NASDAQ:AAPL) running in the Financial Times today, figuring out Apple’s fate, and that of CEO Steve Jobs, is perfect for a slow news week:
- Yesterday, an article in legal paper The Recorder said “federal prosecutors” are looking at some of Apple’s documents regarding options grants that may have been falsified, and that CEO Jobs has retained personal legal counsel.
- The FT today says that Jobs received options in 2001 without the board’s approval, noting that a “purported” board authorization of the grants was on a different date than the grant date of the options, implying the authorization may have been faked. The FT cites “people familiar with the matter.”
- A report today from analyst Shaw Wu at American Technology Research notes yesterday’s Recorder article, contains nothing at all regarding the FT report, and basically appeals to the Securities & Exchange Commission to come to their senses, arguing, “We recently consulted with some of our most trusted sources (one of whom has nearly a decade of Wall Street experience, Harvard-law educated, and also worked at the SEC) on the options investigation at AAPL and the “options problem” overall. Our sources estimate that options backdating is a widespread and commonplace problem in the Fortune 500, affecting potentially as many as 30-35% of companies,” and so, “Given the widespread nature, we doubt the SEC and Department of Justice will pursue a broad ‘witch hunt’ forcing key executives to step down that would undermine the recovery of the US economy.” Hmmm…
- Shebly Seyrafi, who follows the stock for Caris & Co. in New York, acknowledges the FT report in his research note this morning without taking a stand, and says that with Apple’s Macworld event coming up next month, and the prospect of a cell phone being introduced by the company, now’s the time to get into the shares; he thinks the shares can go to $100.
- Bloomberg has a very nice story this morning not only summing up the issues, but also with a good quote from portfolio manager James Grossman with Thrivent Financial, who owns Apple shares, is concerned about the details emerging, but is placing his faith in Steve Jobs. The money quote: “How does it affect the timing, predictability or size of cash flow of Apple going forward? The only way it can is if they implicate Jobs in some way. The charges are serious. I’m going to stick with the original statement by the company that Jobs isn’t a part of it.'’
- Over at Blogging Stocks, Douglas McIntyre asks what would Apple stock be worth should Jobs be forced out. “Jobs’ vision for the iPod has certainly been critical to bringing the stock from below $10 in 2003 to above $80 now [Investors’] concern is whether someone as inventive is at the wheel to make sure that there is another “iPod” if one can be conjured up.”
- Over on Seeking Alpha, Phil Davis, like Wu and Seyrafi, says it’s a buying opportunity in Apple shares, characterizing both the FT and the Recorder articles as “attacks”: “We made a lot of money on this nonsense yesterday, and we will exercise caution, but let’s be on the lookout for another great opportunity today as all this negative Apple news seems very oddly timed ahead of MacWorld.”
- About the only one today landing squarely in the middle on Apple’s prospects is Kevin Hunt, who covers Apple for Thomas Weisel Partners in New York. (Actually, his report was from yesterday, but worth noting nonetheless.) He points out Apple should have very strong sales this quarter of iPods, and a good outlook for next year, but at a price-to-earnings-to-growth of 1.4x, Apple stock is “fairly valued,” and he gives the shares a Market Weight rating, implying it will merely trade with the broader market next year.
- And Barron’s own options guru, Steve Sears, tells me he’s standing by his position in yesterday’s Striking Price column, which is to “buy fear” and purchase January 80 calls on Apple stock expiring in ‘08, on the bet that the current concerns are probably not indicators of deeper problems at Apple. Steven says Apple’s options are again today the most widely traded among equity options in the U.S. options market, as they were yesterday, with 142,000 contracts trading hands.
Meantime, compared to yesterday’s drop of as much as 5.8%, Apple shares today didn’t fall much on the FT report, a mere 2.29%, and they’ve recovered a bunch now, down only about 1.39% at $80.39.