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Patrick Knittle  

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  • Apple Has Become The Most Underrated Stock [View article]
    Valid, and you would have thought it would have been done already given that, but that's just a data pt in the forest - doesn't change the overall message.
    Apr 11, 2013. 09:29 AM | Likes Like |Link to Comment
  • Apple Has Become The Most Underrated Stock [View article]
    It took a personality with the cache of a Steve Jobs to be able to get deals done with recording studios and labels in order to launch an iPod and the integral iTunes service. As a visionary leader, Jobs commanded a level of respect few can match. When one thinks about an iTV possibility and what that might take relative to negotiating with content providers (e.g. studios, networks, etc.) and delivery (e.g. cable operators, broadcasting cos), Tim Cook does not appear to possess that same clout and genuine leadership it may take to convince, cajole, or otherwise cut deals among the diverse and vast set of constituencies. Let’s face it, Steve Jobs was Apple and Tim Cook is not – it does matter.

    The window is rapidly closing on any remaining market leverage Apple might have to call the shots in any negotiations, whether they are with China Telecom, Disney Studios, Deutsche Telekom, or Time Warner Cable.

    Apple could launch a TV or wearable device(s) solution, but given the unmet expectations for these concepts over the last several months, and the speed at which agile and accomplished competitors are innovating and executing ahead of them, such launches are rapidly losing their ability to materially drive Apple’s share price. In fact, they could even result in disappointment and a sell-off if the “wow” factor is not reminiscent of Jobs’ heydays.

    Apple’s $137B, or $145 per share, of cash garners a fair amount of attention when considering the value of its stock, but this is a one-time consideration. Not only that, $94B of that cash, or almost 70%, is held in foreign subsidiaries. 73% of the $15.9B of cash that was added to the balance sheet in the latest quarter was added to foreign subsidiaries, so any math in a cash value per share either has to incorporate a U.S. tax affect for repatriation, or incorporate costs for borrowing against it here in the U.S.

    Some estimates have suggested an iTV could add $13B+ of revenue and $4.50 a share of earnings, but that might only make up for the drop in earnings that stems from iPhones and iPad minis that are cannibalizing older, potentially higher margin models. For instance, recent estimates indicate this cannibalization is contributing a potential drop in overall iPad shipment forecasts from 100 million to 88 million iPads and iPad minis this year.

    If the trajectory of declines in margins and channels fail to be reversed, a P/E of 10 might be grossly understated. Estimates for 2014, which once approached the $60-$65 per share range, are trending back to 2012 levels. That’s zero growth in earnings over the 2 years!
    Apr 10, 2013. 01:09 PM | 2 Likes Like |Link to Comment
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