Several firms are out with comments on Apple (NASDAQ:AAPL) following results out last night:
- Piper Jaffray maintains their Outperform and $250 target saying that while the focus today will be anxiety over gross margin, they expect by the end of the September quarter, the Street will likely look past margin guidance and focus on product transitions, along with the positive impact these products will have on revenue growth.
What is new is Apple guided to a 30% gross margin target for FY09, compared to PJ's previous estimate of 32.3%. The firm believes there are two reasons for this guidance. 1. Apple will slightly lower its pricing on existing products. 2. Apple typically guides GM 270 basis points below the previous quarter's actual GM.
They believe Apple is readying new iPods and new portables that will apply downward margin pressure in the Sept. quarter and into FY09. We believe there is an 80% chance Apple will introduce redesigned MacBooks and possibly new MacBook Pros at lower price points. Specifically, Apple may re-enter the $999 price point (currently $1,099) with the MacBook, or test the $1,799 price point with the MacBook Pro (currently $1,999). In addition, PJ expects slightly redesigned iPods in the Sept. quarter, with lower-cost touch-based iPods for the holiday season. They believe Apple is getting slightly more aggressive with its pricing; but overall the company is not diverting from its strategy of premium pricing.
- Deutsche Bank notes AAPL beat expectations with revenues of $7.5B and EPS of $1.19 (vs. DB at $7.4B & $1.06, Street at $7.4B & $1.08). However, concerns surrounding Steve Jobs' health and weak guidance (GMs of 31.5% in Sep Q and ~30% in FY09) overshadowed results and could likely pressure the stock in the NT. They expect AAPL to oscillate around current levels while investors digest current guidance and await improved visibility into new product refreshes (iPods and Macs) in C3Q. As a result, they lower their estimates and PT to $200 (from $235); maintain Buy.
Regarding Steve's health, management said 'he has no plans to leave Apple and his health is a private matter'. While the topic is delicate, they believe the absence of a straightforward denial of health issues will increase speculation of a worst case scenario. Further, weak guidance (GM's of 31.5% for Sept Q) suggests softening end market demand with lower pricing required to drive share gains (iPods/Macs).
- Oppenheimer notes Apple reported respectable F3Q08 results--as if that mattered. The real news last night was Apple's forecast of a 350bps drop in gross margin in FY09.
Apple attributed the knee-capping to an upcoming product transition, the details of which remain shrouded in the typical cone of silence. So the obvious question is: what magnitude of product innovation (and revenue upside) would propel Apple to sacrifice so much profit?
Opco's guess: something big. While product details and the appropriate growth adjustments will emerge over time, we note that innovation has always been the key to Apple's growth and premium valuation. As such, they'd see a near-term pullback as an opportunity to re-enter Apple on a new ground floor. Reiterates Outperform rating.
- Morgan Stanley notes that while they believe last night’s move in AAPL shares presents an attractive valuation entry point (~$146 = 20x FY10 P/E, ex-cash, and just 0.7x earnings growth), they believe AAPL will remain in this range (and potentially trend lower) until we approach new product introductions in September.
Notablecalls: I'm not buying AAPL here around $150. I continue to suspect the iPhone will be a fad that will cannibalize the iPod opportunity (notice how iPod ASPs took another step lower). Macs continue to be strong, lending strong support to overall results. Yet, it looks like pricing there may be going lower too. That's rarely a good thing.
The matter regarding Steve Jobs' health continues to be a overhang as well. It is reported he is getting thinner and as we know cancer tends to return. Yesterday's conference call comments regarding his health did little to dispel these fears.
We may see a bounce early on, but I suspect there is another 10-15 points worth of downside risk in the stock here.
Yes, new products coming in Q3 may be interesting but what are the chances we will see a repeat of iPod/Mac or even iPhone. Kinda slim, no?