Update at 8:52 a.m. PDT, with additional information from the research note and charts.
A Wall Street analyst on Monday lowered earnings estimates for Apple's fiscal second quarter and year, marking a second whack from a financial soothsayer in the past few days.
Doug Reid, an analyst with Thomas Weisel Partners, lowered Apple's fiscal second-quarter earnings estimates from $1.10 a share to $1.05 a share. Its fiscal second quarter ends in late March. For the fiscal year, Reid cut estimates from $5.31 a share to $5.10 a share, according to his research note.
He also dropped Apple's 12-month stock price target by $10 to $120.
The lowered outlook for Apple comes amid a painful recession.
In checking with retailers and suppliers, Reid estimated that Mac unit sales are declining at a steeper rate than previously expected. He now expects Apple's second quarter to yield shipments of 2.1 million units, compared with his prior expectation of 2.4 million units.
For the full fiscal year, he now expects 9.6 million Mac units to ship, compared with his previous prediction of 10.7 million. Most of this downward revision is expected to come from Apple's notebook line. Reid now expects Apple to ship 6.7 million notebooks in fiscal 2009, compared with his earlier estimate of 7.5 million.
(Credit:
Thomas Weisel Partners)
(Credit:
Thomas Weisel Partners)
Despite his decision to lower his earnings estimates, Reid did note that he views Apple's stock price as undervalued:
Despite our reduction in estimates, we believe AAPL shares are undervalued given the company's strong cash generation capabilities, balance sheet, and clear Mac market share gain momentum. With respect to Mac market share in the 228mn unit worldwide PC market, we expect Mac market share to increase from 3.3 percent in (calendar year) 08 to 3.7 percent in (calendar year) 09. We expect that driving Mac market share gains in (calendar year) 09 will be (1) lowered priced all-in-one desktops released on March 3, 2009, (2) positive impact on Mac unit sales of introduction of DRM free music on iTunes at Macworld on January 6, 2009, and (3) continued momentum from the company's refreshed Macbook line released on October 14, 2008.
We also believe that negative investor sentiment around rising app store competition is misplaced. Specifically, we estimate that app store revenue to AAPL wil be only 0.5 percent of (fiscal year) 09 revenue based on a $23/user spend on applications and that the rise of all app stores, AAPL-controlled or not, serves to increase the desirability and loyalty of users on the iPhone and broader AAPL hardware and software platforms.
Apple was up 2 percent to $87.02 a share in early morning trading.
On Friday, Apple's stock fell as much as as 7.3 percent to $82.33 during intraday trading, after a J.P. Morgan analyst cut his earnings estimates and price target on the company.
That analyst's decision was also driven by the recession's grip on consumer spending.
Apple shares took a sharp drop to start the day Thursday, as the markets opened after Wednesday's news that Steve Jobs would take a medical leave of absence.
(Credit: Yahoo Finance)Update at 2:29 p.m. PST, with closing stock price.
Shares of Apple took a hit Thursday at the market open, falling 5.7 percent as investors demonstrated their anxiety about the company following the news that CEO Steve Jobs is taking a medical leave.
Apple opened at $80.50 a share in morning trading, down from its close of $85.33 a share Wednesday. But by the end of the regular trading session, Apple narrowed the gap, with its shares closing down 2.29 percent to $83.38 a share.
While a number of Wall Street analysts predicted Apple can stay on track with its deep executive bench, investors remain skeptical whether the company's vision and momentum can remain should Jobs' leave extend beyond the summer.
In his tenure, Jobs has provided a clear voice and direction regarding markets that Apple would enter and the types of products, such as the iPhone, for those markets. It remains to be seen whether his disdain for consensus-building and the homogenization of ideas will be discarded in his absence.
"Apple's command and control structure has worked well for the company," said Ashok Kumar, an analyst with Collins Stewart.
Kumar noted, however, that while no one executive can fill Jobs' shoes, the company can move forward with a "group genius" approach.
But one analyst wasn't so sure, downgrading Apple's shares to underperform, or "sell," noting concerns over Jobs' medical leave and the effects of the recession on Apple's products.
Analyst Michael Abramsky of RBC Capital Markets noted in his research report released Thursday:
CEO Jobs' unexpected leave of absence raises near-term uncertainty regarding leadership. Jobs is widely viewed as Apple's chief innovator, dealmaker, leader, deeply involved in minute decisions, inextricably tied to Apple's brand. Jobs' being sidelined for 6 months or more and unavailable day-to-day - with no clear successor - in our view raises risks to Apple's sustaining its stellar record of innovation going forward.
Abramsky also noted in his report that further deterioration is expected in consumer electronics and Apple-related spending over the next three months.
In an RBC IQ/Changewave survey for January, 28 percent of respondents said they planned to buy a Mac laptop in the next 90 days, versus 33 percent of survey respondents back in November.
Analyst Andy Hargreaves with Pacific Crest Securities, meanwhile, believes Apple's future innovation efforts would be better spent exploiting the popular iPhone as a technology platform.
"I think they created a paradigm shift with the iPhone," Hargreaves said.
Expanding the iPhone as a platform through additional services, software, and hardware would also require less high-brow vision.
As for Apple's stock price, which analysts such as Gene Munster of Piper Jaffray described as grossly undervalued and a buy opportunity, it already had concerns over Jobs' health baked into the price, noted Hargreaves.
"Given where the stock has been trading," Hargreaves said, "successful innovation has not been embedded in the price."
Apple's disclosures regarding Jobs' health have stirred concern over the timeliness of disclosures and the quality of Apple's corporate governance. All this also raises the question of whether Apple is setting itself up to be the target of shareholder lawsuits, noted a Reuters report.
Update with analysts comments and stock performance.
Shares of Apple rose as much as 5.63 percent in late morning trading Monday, following an announcement by co-founder Steve Jobs that he would remain as CEO while undergoing hormone therapy treatment.
Jobs' disclosure of a hormone imbalance as the reason for his health decline and that he would remain as CEO while recovering from therapy treatments propelled shares of Apple to as high as $95.86 during intraday trading.
That bump to the stock not only came on a day that the Dow Jones Industries were in the red, but also returned Apple's shares to a level where they were trading two weeks ago, when the computer maker stunned Wall Street with its Macworld news.
In mid-December, Apple announced Jobs would forgo his keynote speech at Macworld and that the company would not participate in future Macworld events, renewing rumors and speculation that the high-profile CEO was gravely ill. Apple's stock fell from $95.43 a share to $89.16 a share following that announcement. And over the two-week period, the computer maker's shares dipped as low as $84.55 a share.
Investors apparently appreciated the update Jobs provided on his health, said analyst Shaw Wu, an analyst with Kaufman Bros.
"Investors wanted more transparency and I think the announcement was a lot better than what people feared," Wu said.
He added, however, the announcement by Jobs and Apple was not a total surprise, given the CEO had previously undergone surgery for pancreatic cancer and that his gaunt appearance over the past year had raised investors concerns, while the company and the founder provided very little information about his health.
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