Apple's a Buy on This Dip

Almost all firms are out in defense of Apple (AAPL) following yesterday's better than expected results but weaker than usual guidance:

- Piper Jaffray (the axe in AAPL!) maintains its Buy rating and $250 target saying yesterday's weakness is a buying opportunity. While the iPod numbers show continued deceleration in y/y growth, they believe the stock action is an overreaction for two reasons.

1) Mac market share continues to rise, and growth rates are accelerating. Using IDC estimates, Mac market share in Dec-07 was 3.0%, or 50 basis points higher than in Dec-06. This y/y increase ties the largest gain in Mac market share since we began tracking IDC data seven quarters ago.

2) Valuation gives support at these levels. Shares of AAPL are currently trading at 25x NTM EPS, the low over last 2 years is 24x and the 2-year average is 31x.

- Morgan Stanley maintains their Overweight rating noting key metrics were more positive than guidance implied.

Both total company Mac and International revenue growth accelerated in December. Retail store growth metrics also improved despite tougher U.S. compares and the expansion of non-AAPL retail storefronts. New products, low channel inventory and expanding BBY distribution (314 incremental stores in C1H) should fuel additional Mac growth in C1H08. While slower U.S.-based iPod growth presents the one area of deceleration in the quarter, the firm already reflects this in their C2008 forecast.

- Goldman Sachs notes the nicks in Apple's December quarter - with Macs in line and iPods coming up short - together with current market sentiment, which punishes any blemishes, leave an overhang on the stock nearer-term. That said, Apple has fundamental and valuation underpinnings, which should allow the stock to outperform on an absolute and relative basis longer term, and they are maintaining their Buy rating.

As a result of strong Mac growth, increasing iPhone revenue, better gross margin, and a richer mix of iPods, they are slightly raising their earnings forecast for Apple despite lower revenue and iPod unit assumptions. EPS estimate for CY08 is now $5.40 (prior $5.37) and for CY09 is $6.70 (prior $6.57). New target is $175 (vs. prev. $220).

- Citigroup says the $15+ decline in AAPL shares in the aftermarket discounts a recession scenario.They are aggressive buyers on pre Wednesday-open weakness even though they recognize that potential y/y declines in iPod units during 1HCY08 may keep the shares range bound for several quarters.

AAPL shares now trade at just 16X F12 FCF excluding cash, an attractive valuation given expectation of 20-25% growth in FCF per share during the next two years. Citi's valuation analysis suggests a 12-month target of $212, ~50% above the aftermarket share price.

Notablecalls: I think AAPL is a bounce candidate today. The company is about the only tech stock that shows above average growth rates. The iPod weakness? With the iPhone on the market, who would have guessed, eh? Come on! At $140 it's been discounted already.

The main story here are the Mac's. That's where AAPL is making the most dough. And Mac numbers came in good.

You gotta buy AAPL for a bounce here.

Comments

[Tom B:]

Jaffrey smarter than all the other analysts put together. They nailed the number of Macs sold number, and they always seem to UNDERSTAND the numbers they get.

Some things, like the sun rising, are very predictable in life. In December, OS X will still be excellent and Vista will still suck. We know the latter from MSFT's own roadmap. Unless they buy Red Hat or some other UNIX-based company, MSFT's code base will continue to be proprietary spaghetti from now til eternity. Windows 7 will be no panacea.

The interesting point to INVESTORS is that companies are starting to look at Macs. Enterprise is the only market MSFT "owns". When that "Berlin Wall" falls, capitalism will filter into IT departments-- the notion that Users might get useful tools to work with instead of centrally planned Trabants (the pathetic East German cars sold during the Cold War).

2008 Jan 23 08:43 AM

[NakoQuant:]

Gotta love the big banks. All of them think the stock is a buy, but the tape says nobody's buying, including the big banks.

2008 Jan 23 11:20 AM

[digivision:]

it's not the big banks it's their analysts they issue these reports but then it's not up to them to buy or not
however they are buying look at the price range today
it was as low as $126 and now it's almost $140 there is a sell off but someone is buying big time

2008 Jan 23 04:01 PM

[digivision:]

if the buying should continue tomorrow or in the next few days the shorts will be forced to cover and the price might get a good run

2008 Jan 23 04:01 PM