Analysts slash price targets, estimates following lackluster results
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Jan. 24, 2013, 4:25 p.m. EST
By Dan Gallagher and William L. Watts, MarketWatch
Reuters
SAN FRANCISCO (MarketWatch) — Shares of Apple Inc. slid more than 12%
Thursday, having tripped a Nasdaq circuit breaker earlier as analysts
rushed to cut their price targets for the once-favored company,
following a lackluster earnings report.
By the closing bell, Apple
AAPL
-12.35%
had shed 12.4% to rest at $450.50, down more than $63 from the previous
close. That put the stock back to its level from last January —
effectively erasing the entire year’s gains that saw the shares run up
to $700 by late September only to come crashing down in the final weeks
of the year.
While the results late Wednesday came roughly in line with Wall Street’s
estimates, the forecast disappointed analysts who have already been
worried about slowing demand for the company’s flagship iPhone.
See: Apple shares tumble on results, forecast
At least two have downgraded the stock to neutral ratings, though nearly
80% of the covering brokers still rate the shares as a buy. Most
analysts still bullish on the shares are pointing to expected new
products that may re-ignite interest in the company.
Read: Apple's next challenge: Finding a catalyst
“We think Apple is losing the screen-size wars as demand is moving away
from the iPhone’s 3.5”/4” and more toward ~5”,” wrote Peter Misek of
Jefferies & Co., who cut the stock to a hold rating and slashed his
price target to $500 from $800. He called the slowdown in iPhone sales
“real and material.”
Several others cut back their price targets on Apple’s shares on Thursday in response to the report.
“Momentum is a powerful thing, both on the positive and negative side,
and it is tough to try to call a bottom in Apple’s negative stock
momentum,” wrote Toni Sacconaghi of Bernstein Research, who trimmed his
target to $725 from $750.
Several analysts made more drastic cuts, though most retain their buy
ratings on the stock. At least 30 analysts cut their targets on Apple
following the report, with the average reduction totaling about 15%,
according to data from Thomson Reuters.
Gene Munster of Piper Jaffray cut his target to $767 from $875, citing
Apple’s gross-margin forecast for the March quarter that remained below
the 40% level that most investors were hoping to see.
“Given new guidance, it appears highly likely that gross margins will be
down sequentially in March despite coming off of a launch quarter,”
Munster wrote. “The implication of a down sequential gross margin from a
launch quarter fuels fears that gross margins will be structurally
different than they have in the past.”
Should iPhone fans fear Google?
Apple recorded a flat profit despite selling 18 million more iPhones and iPads, as it spent heavily to roll out new products to fend off intensifying competition. MarketWatch columnist John Shinal reports.
Before the report, the highest price target on Apple was $1,111, set by
Brian White of Topeka Capital Markets. He cut his target to $888 on
Thursday, citing the decline in Apple’s share price, but adding that he
believes “there is quite a bit of bad news priced into the stock at
current levels, while estimate resets lower the bar for the future.”
For the December quarter, Apple reported flat earnings growth on an 18%
gain in revenue. IPhone shipments of 47.8 million units came in at the
low end of analysts’ forecasts — though still a quarterly record for the
company following the launch of the iPhone 5 in late September.
The company’s forecast was also a concern, as Apple projected a revenue
range of $41 billion to $43. Analysts had been looking for revenue of
$45.6 billion. The company predicted a gross margin range of 37.5%-38.5%
for the March quarter.
Bill Choi of Janney Capital noted that “results and conservative
guidance will fuel additional competitive concerns around iPhone,”
leading him to trim his estimates and cut his price target to $610 from
$745.
“While Apple shares may be under pressure over the intermediate term, we
believe long-term fundamentals remain intact, and we continue to
believe Apple will leverage its ecosystem and innovate on new products,”
he said.
Steve Milunovich of UBS cut his price target to $600 a share from a
previous $650, while maintaining his buy rating. He called the stock
“oversold,” and added that the stock “needs a catalyst, which may come
with new products in the June quarter.”
Learning from Apple and Netflix
Investor reaction following Apple and Netflix's earnings reports say more about Wall Street than it does about either company.
Citigroup, which downgraded Apple to a neutral rating earlier this month, cut its price target to $500 from $575.
“We suspect Apple’s results will do little to assuage investors’
concerns about share and profitability,” wrote Glen Yeung of Citi in a
note to clients. While he predicted that Apple would likely launch new
products this year, including a lower-end iPhone, he said risks would
likely remain in focus.
“With so many uncertainties, now supported by falling consensus
estimates, we believe investors will continue to focus on risks in the
Apple story, limiting share appreciation,” he wrote.
Sacconaghi of Bernstein kept his outperform rating on the shares, noting
that “sentiment is low, valuation is compelling, and several potential
catalysts exist,” adding that “at some point, the cash has to matter,”
adding that Apple has about $145 per share in cash on its balance sheet.
Dan Gallagher is MarketWatch's technology editor, based in San Francisco. Follow him on Twitter @MWDanGallagher.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Follow him on Twitter @wlwatts.
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