Once upon a time, Apple (AAPL -0.57%) was the darling of Wall Street and analysts had nothing but kind words to say about the Mac maker's prospects. These days, analyst sentiment continues to sour and downgrades and related sell-offs are the norm. Just this week, one analyst slashed his price target from $800 to just $360, a 55% reduction.
That's why news of three different analysts expressing confidence in Apple's business is something of a breath of fresh air.
First to speak
Credit Suisse analyst Kulbinder Garcha is out today reiterating an outperform rating on Apple shares, while keeping his $600 price target. The analyst recently spoke with Apple CFO Peter Oppenheimer, like other analysts in recent months, and Garcha feels more confident now that Apple has numerous long-term growth catalysts. One of them is that Apple continues to see unprecedented opportunity in China. Garcha says that Apple is now up to $23 billion in sales even though there are only 11 retail stores in the region.
My figures actually show Greater China revenue at $26.6 billion including retail over the past four quarters and $25.3 billion excluding retail, which implies that retail expansion is indeed still a small part of China sales -- and therefore a huge opportunity for growth. I've also created a special bonus report all about Apple's China opportunity, including retail, in The Motley Fool's Apple service.
The company is opening retail stores in 15 new countries this year and increasing its presence in Brazil and Russia.
The analyst believes that the perception of smartphone saturation on the high end is somewhat overdone. It remains true that unit growth will be greater on the low end, but Apple can still grow on the high end through increased market share and low user churn due to iOS platform stickiness.
Garcha says there's still no news on the cash front, but estimates that Apple has $26 billion of excess domestic cash, saying it could easily afford to increase dividend yield up to 4% this year. Apple has $42.9 billion in domestic cash right now, which implies that it only needs about $17 billion for domestic operations.
Sooner rather than later
Mizuho Securities analyst Abhey Lamba is also standing pat with a buy rating and $575 price target, in part based on the expectation that this year's iPhone will come earlier than in 2012. The next model could launch in June or July, leading to an expected sequential downtick as consumers delay purchases in anticipation of new models.
iPhone units in the current quarter are estimated in the 35 million to 40 million range, which is in line with Street expectations, while June quarter shipments will depend on when new models are released. Lamba is among other analysts that think an affordable iPhone is still in the pipeline for this year, but a larger iPhone will have to wait until 2014.
The analyst expects a cash-related announcement over the "next few weeks," which should entail a big boost in Apple's dividend and buyback programs.
Last, but not least
Raymond James analyst Tavis McCourt has the same rating and price target as Garcha: outperform, and $600. McCourt echoes the other two analysts in the sense that he expects a third-quarter launch of the presumed iPhone 5S, which should translate into a big boost in unit shipments. Since Apple rumors are now widely publicized, consumer delays can be expected ahead of the next iPhone launch.
The analyst tweaked his estimates for this year, with his revenue estimate down slightly and earnings expected to come in higher.
McCourt is still confident that Apple can grow the iPhone business, despite its current size. The iPhone has much larger ecosystem advantages in the smartphone market than the Mac has in the PC market, which will help it sustain continued growth.
