FBR Capital Latest to Cut Apple (AAPL), But Says Catalysts Could Create a Floor

January 25, 2013 11:37 AM EST
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Price: $120.00 +0.18%

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    60 Buy, 10 Hold, 5 Sell

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While most on Wall Street slashed their price target on Apple (NASDAQ: AAPL) on Thursday, FBR Capital's Scott Thompson waited a day. In a report out this morning, Thompson cut his price target from $675 to $625, while maintained an Outperform rating.

He noted iPhone, iPad, and Mac unit volumes and ASPs were below our/consensus expectations and well below levels necessary to serve as a much needed positive catalyst for the shares.

While the Q1 report was short, management's guidance was what drove the earnings reset, according to the analyst. Despite the reset, Thompson continues to believe that the core of Apple's value proposition is a product that is more differentiated than those of its competition.

"That margin of differentiation drives Apple to purchase multiple products from multiple segments, driving an NPV of approximately $254 per customer, more than 200% higher than its closest smartphone competitor," he notes. "We fully concede that the rate of innovation and consistency of execution at Apple have declined over the past 18 months, but we continue to expect that Apple’s product ecosystem advantage will continue to generate more pull through sales than Apple’s competitors."

Thompson sees several positive catalysts that could help to create a floor for the shares over the next several quarters. "We continue to believe the official adoption of iPhones by China Mobile and increased product refresh cadence (two iPhones/iPads per year) could drive additional 15%–20% upside to our current (lowered) EPS estimates over the next four to eight quarters. While many investors remain intently focused on smartphone share, we expect Apple’s ecosystem and positive catalysts to drive FY13 EPS well beyond our forecasted 9% YOY growth."

FBR cut F2Q13/FY13 revenue estimates to $41.8 billion/$176.2 billion from $44.4 billion/$186.0 billion. F2Q13/FY13 margin estimates decline to gross margin of 37.9%/38.6% from 39.4%/39.0%, while our operating margin estimates decline to 29.1%/30.4% from 31.7%/31.5%, respectively. EPS estimates fall to $9.75/$42.93 from $11.13/$46.16, respectively.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple are down 1.07 percent to $445.66.

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