Apple Gets Downgraded From Incredible to Just Plain Great

It's been relatively slow on the Apple (NASDAQ: AAPL  ) news feed today, with little analyst chatter making the rounds today. One of the only analysts providing commentary is Needham's Charlie Wolf, who has reduced his price target after tweaking some of his estimates on long-term iPhone trends.

Wolf notes that Mac sales have been disappointing lately, causing him to reduce his valuation of that business by an incredible 43% since the company missed consensus unit estimates on Mac sales by roughly 1 million. That was primarily related to the considerable supply constraints that Apple was facing with the newly redesigned iMac, since the friction-stir welding process being used in manufacturing is currently plagued with low yields.

Tim Cook said iMac units alone were down roughly 700,000, which covers the majority of that miss but he also warned investors during the October conference call that the desktop would see significant constraints.

The analyst also reduced his long-term estimate of the iPhone, believing that Apple's flagship smartphone will see its market share stabilize around 20% -- down from his prior 22% estimate. Concerns over iPad Mini margins led Wolf to also trim his valuation of the iPad business.

After everything was said and done, what kind of damage are Apple investors looking at? "Just" 57% gains if Wolf's $710 price target comes to fruition relative to the $450 level that shares are now flirting with. That's down from his previous price target of $750 (implied gain of 67%), but Needham is reiterating its buy rating even as the analyst was toning down some of his estimates.

Wolf notes that if the iPhone business continues to decelerate, that would have a disproportionate impact on his overall valuation, since the device continues to be the big moneymaker. Still, eventually I still believe that the iPad will become the primary revenue driver and that's the inflection point that investors are still waiting for.

As it stands, Apple remains one of the cheapest stocks on the market, fetching multiples on par with grocers with razor-thin margins and mature department stores. When will the market fully appreciate Apple's cash machine again? Perhaps when it starts giving more of that cash back.

There's 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 (5) | Recommend This Article (8)

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 February 25, 2013, at 9:44 PM, alboy5 wrote:

    Off the fiscal cliff and the has been aapl has a long way to fall.

  • Report this Comment On February 25, 2013, at 11:10 PM, KaaJamm wrote:

    Yup, Apple has a long way to fall before I lose a dime of principle. Thank you very much!

    Fundamental, I believe the company is strong, zero debt, lots of money in the bank, still turning out huge profits, paying dividends, maybe increasing the dividend soon, still making great products that work. ( I have no complaints on any of my Apple products and will buy again)

    But, daily all I hear is; Doom & Gloom which is a new song from The Rolling Stones by the way and doesn't really reflect Apple Inc.

  • Report this Comment On February 25, 2013, at 11:33 PM, ScottCherf wrote:

    When they discontinued the 17" MacBook and glued the battery into their 15" model I stopped buying Apple. They seem very confused, suddenly unable to distinguish between a professional laptop computer and a phone. It's very disturbing.

  • Report this Comment On February 26, 2013, at 4:21 AM, H3D wrote:

    @scottcherf

    As a pro with a 17" MacBook I bought the 17" for screen resolution, not because of poor eye sight.

    It's coming up to 4 years old and in perfect condition, despite working hard. Nothing has ever failed. The battery lasts as long as when it was new.

    So, what will I do it I need to replace it?

    The new 15" battery was never user replaceable anyway. For a non user, warming the glue with a hair drier for 30 seconds, simply isn't an issue.

    And the new 15" has 2.25x as many pixels as the old 17". It's still the resolution that I need, not the inches.

    So I'll take the smaller, lighter machine and be happy.

    Maybe I won't wait 'til the old one fails. It's paid for itself many times over.

  • Report this Comment On February 26, 2013, at 4:23 AM, H3D wrote:

    Sorry, the old 17" battery was never user replaceable anyway.

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