Apple 2.0

Covering the business that Steve Jobs built

The analysts on Apple's iBlip: A 'hiccup,' a 'black swan,' a 'breather at altitude'

October 19, 2011: 8:37 AM ET

Most shrug it off as a transitional aberration. Several raised their price targets.

Apple's (AAPL) fourth quarter results were the first since at least 2004 that failed to beat the analysts' consensus. A sampling of what they had to say about that:

Needham's Charlie Wolf:  Not every quarter is a blowout. "The slowdown in iPhone sales in the second half of the September quarter in advance of the launch of iPhone 4S appeared to take some analysts by surprise. However, shipments of 17.073 million iPhones were virtually in line with our 17 million estimate." Maintaining buy rating and $540 price target.

ISI's Brian Marshall iPad Disappointing?…You Gotta Be Kiddin' Me. There is a contingent of investors who are disappointed with AAPL's iPad results in the quarter. However, we find this hard to believe as the iPad grew ~165% y/y in the quarter and generated nearly ~$7bil in sales. Reiterate Buy and $500 price target.

Deutsche Bank's Chris Whitmore: Even mountain climbers need a breather at altitude. "Apple pointed to a demand pause towards the second half of the quarter ahead of the anticipated iPhone 4S release which negatively impacted iPhone results. In addition, a deferral of carrier expansion activity (waiting for iPhone 4S) into the December Q contributed towards lower potential international iPhone unit shipments." Buy with a $530 price target. 

JMP Securities' Alex Gauna. The iDomino falls after six years of beats. "Although we anticipate widespread dismissal of the miss as a product transition wrinkle rather than a trend, we view the blow to the company's sterling track record as significant and caution investors that, 1) Apple remains a high cost/premium vendor in an economically-sensitive environment, 2) Android is growing share more rapidly owing to a lower cost structure and supports more open development, 3) the company has now had a second stumble right out of the box under new management (the first being the iPhone launch), and 4) the company has a high risk vertical approach to many of its products.  Market perform. Target price: "NA."

Ticonderoga's Brian WhiteApple Experiences a "Black Swan" As Consumers Wait for iPhone 4S. "Essentially, we believe the iPhone pause going into the launch of the iPhone 4S was the culprit for this miss and provides investors with a gift ahead of the holiday season. Keep in mind, Apple's next quarter outlook is stronger than typical, driven in part by what we believe is a resoundingly successful start for the iPhone 4S." Buy with a $666 price target. 

Morgan Stanley's Katy HubertyA Small Hiccup but Pump Primed for C4Q. "We believe the Street underestimated the degree to which September was a transitional quarter for the iPhone but with strong iPhone momentum out of the gate in October, we don't see the light iPhone shipments as a cause for concern. Importantly, 1) Apple guided C4Q above consensus on both revenue and EPS (which the company has done only 3x since 2006), 2) gross margins won't deteriorate despite iPhone price cuts, and 3) Apple expects record iPhone and iPad units in the December quarter." Overweight. Price target raised to $480 from $470. 

Baird's William PoweriBlip, Though Opportunity and Thesis Unchanged. "Per a question, Apple's CEO didn't dismiss the possibility of a buyback or dividend in the future, which we view positively." Outperform. Raises price target to $540 from $525. 

RBC Capital's Mike Abramsky: Siri, Is Apple Still the Fairest of Them All?  "While the Q4 miss – following management transition – may restrain near-term investor sentiment, we think the new management team should be given its opportunity to show what it can do. Apple's key franchises (iPad, iPhone) remain early and underpenetrated, with significant growth drivers (4G, China, emerging markets, enterprise, etc.) ahead." Outperform. Above average risk. Price target: $500.

J.P. Morgan's Mark MoskowitzSiri Says "Diss the Miss, It's All Timing." "In our view, Apple is trading like a value stock and not as the lone super-growth story in large cap equities. It is time for the value-like multiples to be re-rated higher. Our current C2011 and C2012 revenue and EPS growth estimates position Apple as a potential break-out star in large cap tech, and these estimates likely have upside potential." Overweight. Price target: $525. 

Morgan Keegan's Tavis McCourt: Bizarro World -- Apple misses, but guides higher. "Geographically, Asia Pacific remains "on fire" with 100%+ Y/Y growth for the seventh consecutive quarter. " Outperform. Raises price target to $530 from $517.

Piper Jaffray's Gene MunsterRumor Mill Gets The Best Of Sept. & Pushes iPhone Demand Into Dec. "Excluding the iPhone, Apple had another impressive quarter. iPad topped our expectations by 11%, growing at 166% y/y. Mac sales beat our estimate by 8%, growing at 26% y/y vs. 14% in June. The bottom line, we believe Apple's fundamentals are firmly intact, and would be buyers on today's pullback given investor focus over the next nine months will shift to iPhone 4S sell-through, holiday sales, then anticipation of iPad 3 and iPhone 5 (late summer/early fall)."  Maintain overweight rating and $607 price target.  

Sterne Agee's Shaw Wu: Surprising miss amid unrealistic expectations. "We are not proud modeling 18.5 million iPhones which turned out higher than actual 17 million shipments but we were materially below consensus of 20 million, not to mention some analysts who assumed as high as 23 million units." Buy. Price Target: $500

Cowan's Matthew Hoffman: Aggressive outlook reflects iPhone 4S ramp. "Normally we might be concerned, but we believe some perspective is in order: (1) Apple "only" beat its $25B revenue guidance by ~13%, not the 15%+ expected in a quarter where the world knew its key product (iPhone) was ready to update imminently, (2) the iPhone 4S is already off to a very strong start here in F1Q12, (3) Apple guided F1Q12 revenue and EPS above consensus."

Janney's Bill Choi: iPhone transition hurts Q4, but helps Q1. "It is also important to note that Apple opted to defer new carrier and country additions from the Sept qtr until after the iPhone 4S launch. We believe pent-up demand and expanded carrier distribution (notably Sprint and KDDI) will provide upside to iPhone estimates in Q1. The iPhone has 230 carriers in 105 countries with the iPhone 4S currently in 7 countries and expected to roll out in 22 more countries by the end of the month. Q4 iPhone channel draw-down should also force Apple to replenish the channel in subsequent quarters to meet increased demand." Buy. Fair value estimate: $495.

Rodman & Renshaw's Ashok Kumar: Product transitions weighed on iPhone but iPad shortfall could be systemic. "iPad units of 11.1M came below our expectation of 12.5M as MacBook Air sales likely cannibalized iPad demand. Looking out, we expect slower but sustainable growth for iPad 2 with its distribution now in 90 countries. Apple exited the quarter with 75% share in the tablet market." Market outperform/moderate risk. $450 price target.

Jefferies' Peter Misek: iPad shipments slightly below consensus. "Investors had hoped that, once supply constraints were overcome, there could be substantial upside to iPad shipments. The lack of upside could indicate that Apple is not entirely immune to global macro-related consumer softness." Buy. Price target: $500.

Think Equity's Mark McMachnieProduct transitions tougher as the iPhone matures. "We are still not comfortable with Apple's product transition practice of lowering the price on the former flagship following a new product launch. In our view, the problem comes with transitions where consumers may choose to buy a $99 iPhone4 rather than 'buck up' for the $199 iPhone4S." Buy. Price target: $450. 

Wedbush's Scott SutherlandWe would be buyers on weakness. "While Apple did not add any new carriers in FQ4, we expect several new carrier launches in FQ1 in conjunction with the iPhone 4S including Sprint and KDDI. We point out that RIM and Nokia both distribute through >2x number of carriers meaning Apple still has a material global expansion opportunity for the iPhone, as well as the iPad." Reiterates outperform and raises price target to $535 from $530.  

Wells Fargo's Jason MaynardiPhone Units Stall Ahead Of 4S--Expect Rebound In Q1. "Management offered up fairly robust guidance for FQ1 2012 of $37 billion and EPS of at least $9.30. As we back into these numbers it seems to imply a strong rebound in iPhone units of at least 25 million."  Valuation range of $460-$480.  

Citigroup's Richard Gardner: Buy the dip. "We view this morning's pullback in AAPL shares as an attractive buying opportunity ahead of what should be a stellar 4CQ11 and a series of important product refreshes in coming quarters." Buy. Target price: $500.

Credit Suisse's Kulbinder Garcha: A pause before the ramp. "This quarter Apple set new records for quarterly revenues and profits; however, it missed sell side revenue and EPS estimates for the company. Despite some concern on the part of investors regarding this shortfall, we believe that this is more of a timing issue and going forward the company's fundamentals should continue to be strong." Reiterates outperform and $500 price target. 

William Blair's Anil Doradla: First Miss in a Long Time; But Still the Best Gig in Town. "Gross margin of 40.3% was down 140 basis points sequentially but exceeded consensus estimates of 39.6% and guidance of 38%, despite the mix shift away from higher-margin iPhones during the quarter. Moreover, management guided to gross margin of 40% during the December quarter, as favorable component pricing and improving iPhone sales are expected to offset reduced selling prices and foreign currency headwinds." Outperform.

Atlantic's James Cordwell: A rare miss, but guidance encouraging. "Revenue from Greater China reached $4.5bn, growing ~270% YoY. The country is now the second largest for Apple, representing 16% of total company revenue. FY11 revenue totalled over $13bn and we believe this could reach around $40bn in FY13 given Apple's momentum in the country, leaving the rest of the world required to grow at just an annual average rate of 15% to hit our estimates." Price target: $520.

Canaccord Genuity's T. Michael Walkley: Expect record holiday quarter. "Mac sales increased 26% YoY versus an estimated 4% growth rate for the overall PC market. In fact, Apple management indicated Mac sales growth has outpaced the industry growth rate for 22 consecutive quarters, and we expect this trend will continue throughout F2012 and F2013. Further, Mac unit growth continued despite increased demand for iPad, and we believe this demonstrates the halo effect from iPhone and iPad sales to increase Mac sales." Target: $545.

FBN's Shelby Seyrafi: Buy on the pullback. "With $86/share of net cash, shares of AAPL are now trading at only 9x C2012 EPS ex-cash and represent a compelling buy." Outperform. Target: $515. 

UBS' Maynard Um: Fundamentals remain intact. "We believe that despite the disappointing qtr Apple has a strong pdt line-up & is primed for its best holiday qtr ever." Buy. Price target: $510. 

BTIG's Walter Piecyk: "Apple ... failed to match Street estimates that were overly optimistic on iPhone sales estimates that did not adequately factor in an expected lag ahead of a new product launch. The company flagged this issue on their last quarterly call and it has been a historical pattern ahead of past product launches." Repeats Buy and raises price target to $550 from $500. 

Phew. I think that's the lot from Wall Street.

Meanwhile, some of the independent analysts who missed so badly this quarter have posted thoughtful mea culpas. I recommend Horace Dediu's at Asymco.com and Robert Paul Leitao's at Posts at Eventide.

Join the Conversation
About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

Email | @philiped | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.