Apple? $400? Really?

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Skepticism when it comes to Apple (NASDAQ: AAPL  ) is pretty trendy these days, but most downbeat analysts don't have anything on Per Lindberg.

Lindberg -- from Norway-based ABGSC Sundal Collier -- initiated coverage of the tech giant with a sell rating and a $400 price target.

Warning that consumers are starting to go through "fashion fatigue," his prognosis on how the next couple of years will play out is pretty grim. He sees a profit of just $44.90 a share this new fiscal year on $180.6 billion in revenue. In other words, Lindberg sees revenue climbing just 15% and profitability inching a mere 2% higher. Compare that to the revenue and earnings growth of 23% and 12%, respectively, Wall Street's current consensus for fiscal 2013.

It gets worse.

Lindberg sees profitability dropping to $40.17 a share come fiscal 2014 with revenue climbing by 3% to $180.6 billion. Instead of the widening margins that analysts see next fiscal year -- with growth targets of 15% on the revenue side and 18% in earnings -- Lindberg feels that margin pressure and flattish sales growth will be the new normal for Apple.

Is Apple the new Nokia?
Scandinavia has seen a hot wireless phone maker grow cold. Lindberg is likely no stranger to Finland's Nokia (NYSE: NOK  ) . For years Nokia was the world's largest maker of handsets. It's been recently lapped by Samsung. Nokia lost its lead by not embracing smartphones -- more specifically Android smartphones -- in time.

Apple is certainly not immune to Android's success. Google's (NASDAQ: GOOGL  ) open source mobile operating system has given developers a second mobile platform that they have to support.

However, Lindberg seems to also be giving a fair deal of credit to Microsoft (NASDAQ: MSFT  ) as a threat to Apple's iPhone with its recent Windows Phone 8.

Really? Android as a freely available open source platform is going to be a fierce competitor. However, if Microsoft hadn't promised Nokia billions to support Windows Phone 8, would it even be a factor right now? There also doesn't appear to be much of an appetite by developers to code apps for Windows Phone or for consumers to switch.

Mapping the problem
Lindberg also refers to the Apple Maps fiasco as a sign that consumers may be turning on Apple. Yes, that was an embarrassing episode, but is it really a " a crude reminder that all cycles of vogue eventually come to an end"?

No. Mistakes happen, even at Apple. Folks put up with a buggy antenna on the initial iPhone 4 shipments, and at least the Apple Maps fiasco is a software fix away.

Apple isn't going to get free passes forever, but even this imperfect Apple finds a way to sell more iPhones with every passing incarnation.

Apple isn't going to catch up to Android. The iPhone is too expensive, especially in the vast majority of countries where the wireless carriers don't subsidize handsets, to ever unseat Android as the smartphone for the masses.

So what? We've seen how much money Apple has been able to make while both the Internet and smartphone migration cycles are still in their infancies. Developers will continue to support iOS despite Android's global market share dominance. Of course. It's the folks that can afford an iPhone that are more likely to buy apps or virtual goodies than the Android majority.

The $400 question
Even under Lindberg's scenario, it's hard to see $400.

Yes, margins would be declining and revenue would be flattening out, but this isn't simply of arguing that Apple at $400 would be a reasonable 10 times fiscal 2014's profitability. Apple currently has a little more than $121 billion in the bank -- or roughly $128 a share -- and even Lindberg's bearish assumptions would push the company's greenery past $200 a share in two years. Is Apple really worth just five times enterprise value?

Sure, a lot of that money is marooned overseas until a repatriation tax holiday is introduced. Apple is also committed to aggressive share buybacks which will eat at the company's idle cash, yet it will also lower the number of common shares outstanding.

Is that really a likely scenario, though?

If we go by the analyst consensus instead, Apple at $400 is closer to seven times fiscal 2014's profitability and just a little more than three times earnings on an enterprise value basis. That's just not going to happen.

Investors need to decide if Apple is peaking -- as Lindberg suggests -- or if the iPhone and the entire iOS ecosystem has legs. Growth will decelerate at Apple in the coming years. Margins may be tested. However, there doesn't seem to be a legitimate reason to bump Apple off its northerly trajectory.

There are too many people who feel that way to ever let Apple get as cheap as Lindberg suggests.

Apple's next act
There's no doubt that Apple is at the center of technology's largest revolution ever. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 05, 2012, at 6:31 PM, dwilh51183 wrote:

    Just another tool reporter trying to get AAPL shareholders to sell so he can scoop in and buy it at a real cheap price and make a killing off of it. I tend to believe the analyst on TV , GENE MUNSTER, saying today that AAPL is going to go to $900.00 Even Jim Cramer said "BUY AAPL" ! It is simply tax selling, and hopefully APPLE CEO TIM COOK will authorize AAPL to start buying back 10 billion dollars worth of this under valued stock.

  • Report this Comment On December 05, 2012, at 7:13 PM, OneSwede wrote:

    Even analysts are driven partially by the same logic as web sites throwing up click-bait headlines - they all strive to get attention in a ton of news feed noise every day. Had Lindberg just echoed so many other analysts that AAPL is fundamentally undervalued, he would have become the 43rd guy to slap a Buy rating on the stock and a $650-$850 target. Another me-too statement that wouldn't even pass the door into yahoo finance's news ticker.

    The sell rating and the $400 target has definitely made him a headline name within hours of his AAPL coverage. He won't be held accountable if AAPL is in fact back up around $700, or higher, within 12 months from now. His analysis to get to the $400 target is simply ridiculous, just like you outline well in your article, Rick.

    Maybe Microsoft can grab back a small share of the smartphone and tablet market in the next couple of years. But, the initial response from the market and reviewers of Windows 8 and Microsoft's Surface tablets makes it a bit early to say that Apple's saga is over as a result.

    Even the huge number of Android devices don't seem to pose the threat to AAPL's platforms and eco systems as one would think from the sheer numbers. Even the most recent data confirms that iPhones and iPads continue to dominate web traffic and e-shopping generated from mobile devices. Same thing goes for app purchases etc and ad revenues.

    It clearly looks as if Apple is more than capable to instill that desire in people to use its products once purchased. It is also in stark contrast to Mr. Lindberg's theory of consumers going through "fashion fatigue" and that Apple is particularly at peril here.

    In any case, I believe long term investors should (as always) do a more rigorous analysis of AAPL to form an opinion on AAPL than the piece offered by Mr. Lindberg. It is not difficult to list potential risks, but the analysis coming from Norway here does not rank as an analytical master piece.

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