Apple (AAPL) Raises Rare Concerns for Wall Street in Q4, But Record December Quarter on Deck

October 26, 2012 12:08 PM EDT Send to a Friend
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    56 Buy, 9 Hold, 3 Sell

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After showing impressive resilience in the face of disappointing fourth quarter results after the close, shares of Apple, Inc. (NASDAQ: AAPL) are now drifting lower as the numbers start to sink in with investors. In addition to investors, analysts from around Wall Street are trying to make sense of the results especially in-light of the upcoming December quarter already underway.

Goldman Sachs "We expect Apple to quickly regain some of its recent losses as a result. Nevertheless, the relatively lackluster EPS performance and the gross margin guidance add some incremental concerns. Our analysis suggests that the margin issue will ease soon, but it will take strong December quarter revenue and EPS to make up for the past two earnings shortfalls. We've added some incremental caution to our estimates until this occurs and to account for the weak macro environment." Maintains CL Buy, cuts price target from $810 to $760.

Needham & Company Charlie Wolf - "With the virtually simultaneous launch of an all-new product lineup in the past six weeks, Apple is embarking on a quarter unlike any in the past. We're reducing our fiscal 2013 estimate from $50.00 to $45.75 chiefly because of a deterioration in gross margins accompanying these simultaneous launches. Maintain Buy, $750 target.

Topeka Capital Brian White - "Last night, Apple reported in-line 4QFY12 results and a strong 1QFY13 sales outlook; however, the Company expects gross margin to come under pressure due to massive product launches over the past six weeks. Over the next year, we expect this headwind to turn into a tailwind as efficiencies are realized around these new form factor products. More importantly, Apple continues to innovate with new products such as the iPhone 5 and the iPad mini that we believe will prove to be blockbuster hits this holiday season, while the iPod and Mac lineup have never been stronger. With a 14% correction in the stock price over the past month and now trading at just 9x (ex-cash) our CY13 EPS estimate, we would be aggressive buyers of Apple ahead of the holiday season." Maintains Buy, $1,111 price target.

BMO Capital Keith Bachman - "We think there are two issues from the call - 1) poor gross margin guide for the December Q, and 2) weak iPad sales in the September Q. For the September Q, we estimate iPhone gross margins were approximately 50% and iPad gross margins were approximately 32%. For the December Q, assuming 47 million iPhones and 20 million iPads, even if we assume that iPhone gross margins decline to 45% and iPad gross margins decline to 25%, then our total gross margins would be 37.6%, not the 36% guided to by management. We have assumed 37% gross margins in our model for the December Q, but we think we might be conservative." Maintains Outperform, $730 price target.

Canaccord Genuity T. Michael Walkley - "In-line results; margin guidance disappoints but provides opportunity Investment recommendation: Consistent with our monthly checks indicating solid iPhone 4 and 4S sales ahead of the iPhone 5 launch and very strong initial iPhone 5 sales, Apple reported Q4/F12 results in line with our estimates. However, Apple provided guidance well below our estimates and consensus. We believe the soft December quarter guidance was primarily due to lower gross margins given Apple anticipates new and re-priced products will comprise 80% of December quarter sales and new products tend to have lower gross margins during the early stages of production. We maintain our belief Apple is well positioned for strong F2013/14 growth driven by new product launches across its portfolio." Maintains Buy, $800 price target.

Sterne Agee Shaw Wu - Rare EPS Miss But Would Have Handily Beat if not for Higher FX Hedging Costs; Reducing Estimates; Bull Thesis Intact. AAPL reported a mixed Sept qtr where it beat revenue & missed EPS but would have beat by $0.16 if not for higher than expected FX hedging costs. Several things played out as we previewed but there were surprises vs. consensus: 1) iPhone shipments of 26.9mm came in better vs 25-26mm; 2) lower than expected gross margin & guidance due to higher COGS of new products; & 3) iPads came in at 14mm units which was worse due to a pause & inv drawdown ahead of iPad mini & 4G iPad... For FY13, we are now at $192.8 billion in revenue and $47.00 in EPS (from $193.4 billion and $52.00 in EPS) vs. consensus at $194 billion and $53.24 in EPS. We are introducing FY14 estimates of $221.2 billion in revenue and $58.00 in EPS." Maintains Buy, $840 price target.

Wedbush Scott Sutherland - "While FQ4 results were better than feared, FQ1 guidance was weak, though likely conservative. Given Apple’s attractive valuation at 9x FY13E adjusted EPS, and the broadest new product launch in the company’s history, we continue to see a very strong FY13 and Apple remains a BEST IDEA." Maintains Outperform, $885 target.

Gabelli - "We maintain our long-term Buy recommendation on Apple. Market competition, current product portfolio and design, sticky and large customer base, and Apple’s ecosystem still favor Apple compared to its competitors." Maintain Buy, $1090 target.

Nomura Stuart Jeffrey - "New products hit margin, but should recover by June quarter. Apple fractionally missed expectations for FQ4 and gave what appears to be typically conservative revenue guidance for FYQ1. The main surprise was management guiding for a 400bp qoq decline in gross margins, resulting in EPS guidance 25% below consensus expectations. Apple typically faces this with every major form factor change, but has never launched so many new form factors at the same time. Given the company’s track record, we suspect that gross margins will slightly surprise in Q1 and normalize by the June quarter. We continue to estimate that developed markets growth with slow to mid single digit levels through FY15. F13E/F14E EPS from $51.68/$55.58 to $46.68/$54.07." Maintain Neutral, target from $710 to $660.

Oppenheimer Ittai Kidron - "Apple delivered in-line results, but a disappointing outlook that's likely to leave investors with some questions. This could create a near-term overhang in the shares, but we believe we're at an operational bottom here and would buy on any weakness. To us, the sales and margin guidance reflects an unusual combination of events—a short quarter, an unusually high new product mix, supply-chain uncertainty and a tough macro. The bright side of this is it will force estimates and expectations lower and de-risk the outlook from here. We believe long-term fundamentals are still strong with ample room to reach more of the mid-tier market, expand internationally and grow TAM through new devices/
services." Maintains Outperform, $800 price target.

Wells Fargo Maynard Um "Apple's September qtr revenue of $35.9B was modestly above our/Street est of $35.5B/$35.8B though EPS of $8.67 was below our/Street $8.94/$8.75. While we est EPS may have been $8.77 when adjusting for 1x gross margin (GM) benefit and interest expense impact, reported gross margin of 40% was disappointing (our/Street forecast of 41.7%/40.8%). Revenue guide of $52B was better than what we thought Apple would guide to though the key issue was gross margin guidance of 36% (primary reason for our est revisions) which is impacted by the large number of new product launches in the December qtr (new products typically start at lower margins and ramp up over time), reduced margin on iPad Mini, and price reductions on iPhone 4/4S. While disappointing relative to our expectations, we may be through the eye of the storm with the good news, in our opinion, being 1) a reset bar from reduced ests, 2) potential for better than seasonal gross margin in a future qtr as the new product cycles mature simultaneously, and 3) its strongest holiday product portfolio. Maintains Outperform, price target range from $740-$760 to $710-$730.

Deutsche Bank Chris Whitmore- "AAPL reported revs of $35.9B and EPS of $8.67 which missed (vs. Street at $36.3B/$8.88; DB at $37.6B/$9.10) on light iPad (14M vs. DB at 18M) and Macs (4.9M vs. DB at 5.4M) while iPhone was in-line with our bullish estimate (26.9M vs. DB at 27M). We trim est’s on margins associated with new product ramps (GMs guide to 36%) but with the biggest product refresh in history into the Dec Q, we recommend investors Buy AAPL on any pullback. Trading at $610 in the aftermarket (~8x PE ex cash) we view AAPL as undervalued." Maintains Buy, cuts price target from $850 to $800.




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Analyst Comments, Analyst EPS Change, Analyst EPS View, Analyst PT Change

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Deutsche Bank, Needham & Company, BMO Capital, Sterne Agee, Nomura, iPhone 4, Ittai Kidron, Earnings, Wells Fargo, Canaccord Genuity

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