A bullish analyst lowers his Apple price target
For a full 12 months - even as Apple’s (AAPL) share price fell and rose and fell again, from $202 last December to $80 last month - Piper Jaffray’s Gene Munster stuck to his price target of $250 share.
Until today.
Citing the “macroeconomic headwinds” that are slowing PC sales across the board, he announced on Thursday that Piper Jaffray is lowering its 2009 target for Apple to $235 a share.
That’s still higher than all but five of the 35 analysts surveyed by AAPLinvestors, whose targets for Apple range from Barclays Capitol’s $113 to ChangeWave’s $275.
But it represents a significant concession by one of Apple’s most bullish analysts, and the one that many investors consider the most reliable.
In a report to clients issued early Thursday morning, Munster offered three scenarios - bear, neutral and bull - summarized in the table below:
But even his most bearish estimates will sound - except perhaps for his iPod numbers - bullish to some. He justifies them as follows:
- Mac. “While our ‘09 Mac unit growth estimate of 10% y/y may seem aggressive, we point out that Mac units (excluding the Sept. 2008 quarter…) have grown on average by 43% Sept. ‘07 to June ‘08.”
- iPod. “Bottom line: we are modeling for the sky to fall on iPod demand. In FY08 iPod units grew at 6% y/y. We are modeling for units to be down 20% in CY09. This is not an optimistic outlook for iPod in ‘09.”
- iPhone. “We think that iPhone demand will spike in CY09 (we are modeling units to go from 16m in CY08 to 45m in CY09).”
Munster’s prediction that Apple will ship 45 million iPhones in 2009, it must be noted, is considerably higher than any other analyst we’ve seen. How does Munster justify it, especially given what he acknowledges is a meltdown in consumer spending? 1) His belief that the smartphone market will grow in ‘09. 2) The power of iPhone software. 3) His continued belief that Apple will introduce a family of iPhones in ‘09, aimed at market segments (prepaid, teens, business professionals) not currently being targeted by Apple.
Munster does offer one caution about the iPhone’s prospects for 2009. Given the flood of competing smartphones (i.e. Storm, Instinct, Nokia N97, and Android-based phones, to name a few), he adds:
“On a separate note, the iPhone does run the risk of death by a thousand cuts as new phones enter the market with strong initial demand, then fade away.”
Munster concludes by pointing out that Piper Jaffray is lowering its 2009 revenue and earnings estimates across its “entire coverage space” in the range of 10% to 15%. But Apple, he believes, is better positioned than most companies to weather the storm. Accordingly, he is reducing Apple’s revenue estimate by only 3% to 7% in his three scenarios:
AAPL is vulnerable to market activity, as it’s a good tradable and investable stock. The company meets critera of strong balance sheet with product differentiation.
Buyers are younger non-techies and techies who like unix-like environment and virtualization capabilities. Not a group of buyers at risk. If they’re not buying a house, why not buy a computer?
Many business apps are moving to the web and away from Windows platforms because the software maintenance and support are so high. Firefox compatibility and solid web standards instead of Windows versioning can save a company (small or large) a lot of maintenance expense.
Finally, people do buy quality for a premium. Look at the BMWs, Lexuses, Acuras, etc, that take a person the same place as Chevys, Camrys, etc. People may step down from a BMW to a lower priced car as a major cap ex, but computers are now not cap ex for middle America.
If it’s a great company that’s continuing to grow, and the shares are trading at only about 5x earnings — what’s not to like about the shares???
Remember Apple’s got about $25/share in the bank, and will clear another about $10 - $12 this year. They continue to grow far faster than the markets they operate in. Even in this environment the valuation will eventually reflect the fundamentals.
A few points.
1. Apple makes nothing but overpriced toys with no business applications.
2. The Chinese won’t pay full price for the iphone when they can get knockoffs for a third of the price.
3. A great set of books cannot create performance in a terrible consumer market.
“There should be Absolutly no reason for this sell off in Apple today.”
No? I’d say a 300+ point drop in the Dow is reason enough.
Bottom line: Apple is still being sucked down by the larger market. I don’t expect to see a significant turnaround in Apple until there is a corresponding turnaround in the market as a whole.
And that might not happen until February of ‘09 when the Obama Administration finally takes over, barring a complete policy surrender by the Bush Administration.
Mr. Munster is confusing corporate value with stock value. Great company, bad stock. Game over, look out below.
U can’t believe that Munster’s prior forecast has been holding Apple’s share price up, There should be Absolutly no reason for this sell off in Apple today.
Ah, so his target is lowered from $250 to $235, so the stock falls 4+% to $92??? Makes perfect sense to me!
Not.
I’ll never understand the foolish gyrations of AAPL sellers.
I’m in for the long haul. Jittery investors silly enough to sell at $92 when one analyst lowers his price target to $235 in the coming year (note: a 100%+ gain over current prices) deserve to miss out on big gains.
It seems that EVERYONE INCLUDING MUNSTER is forgetting that Steve Jobs promised to be selling the iPhone in China before the end of 2008. China is STILL expected to grow at a respectable 4-5% in 2008 even being down from 8-9% growth. That is only a MAJOR POSITIVE for Apple revenue and earnings.
Wouldn’t you think that this SMALL lowering of revenue and price target is ALREADY “OVER PRICED” INTO THE STOCK PRICE???
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Silicon Valley veterans like to joke that Steve Jobs must be surrounded by a reality distortion field; if you get too close to him, you start to believe what he's saying. Thanks to the success of the iPod, the launch of the iPhone and the renewed interest in the Mac, Apple has made believers out of millions of customers - and made a lot of investors rich. But Philip Elmer-DeWitt believes that an ounce of skepticism never hurts when writing about the company. He should know. He's been covering Apple - and watching Steve Jobs operate - since 1982, first for Time Magazine, then for Business 2.0, and now for Fortune.
Ah, Todd - have you ever been to China? The Chinese *will* pay full price for the iPhone. In fact they already are, in droves, as I have personally witnessed in Xian and other cities. The Chinese are more brand aware than many Westerners, and the Chinese value classy devices with both technical appeal as well as fashionable.
If anything, perhaps the iPhone is still a bit over priced for many Chinese. However, remember in China the phone is the main form of Internet communication. So many will be willing to spend more for it.