Auriga Starts Apple at 'Buy,' But Should It Be 'Hold' Instead?
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Price: $311.30 -1.75%
Rating Summary:
45 Buy, 28 Hold, 9 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 12 | Down: 15 | New: 40
Rating Summary:
45 Buy, 28 Hold, 9 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 12 | Down: 15 | New: 40
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In what might turn out to be the best call in ages, research firm Auriga Securities (pronounced O-rye-gah seh-kuhr-iht-tees).
The firm initiated Apple (Nasdaq: AAPL) with a Buy rating and $550 price target, suggesting a comfortable 33 percent of upside.
Despite the Buy rating, Auriga made a solid case for a Hold rating.
First, the firm sees fiscal first-quarter 2012 earnings of $9.86 on revs of $38.4 billion, not unlike what the Street is modeling. One analyst said he sees "softness" in iPad sales and supply issues on iPhone availability.
He then pointed to Steve Jobs aiding to Auriga's creation of the "flash markup model," where Apple was able to capture even small increases in memory with substantial price hikes, even as flash memory prices have declined over the last few years.
The analyst gives this scenario, not pleasant for Apple bulls: "EMC (EMC) employed a similar model effectively with disc drives in the 1990’s, but it collapsed in 2001, as the arrival of serious competition, combined with more discerning customers following the Internet bubble burst, resulted in a sharp revenue deceleration followed by a collapse of gross and operating margins. Some of the same conditions exist today for Apple, so investors should watch market share and any pricing cuts very closely."
But not all is negative; the Auriga analyst is modeling for third-quarter EPS of $8.77 and revs of $33.8 billion, and fourth-quarter EPS of $9.68 and revs of $36.7 billion, both better than the consensus.
He also cites Apple's tremendous free cash flow of about $31 billion in the last fiscal year, and a P/E-to-growth ratio of 0.5 times, making it a cheap growth stock even appropriate for value investors.
Shares of Apple are up about 0.5 percent Thursday.
The firm initiated Apple (Nasdaq: AAPL) with a Buy rating and $550 price target, suggesting a comfortable 33 percent of upside.
Despite the Buy rating, Auriga made a solid case for a Hold rating.
First, the firm sees fiscal first-quarter 2012 earnings of $9.86 on revs of $38.4 billion, not unlike what the Street is modeling. One analyst said he sees "softness" in iPad sales and supply issues on iPhone availability.
He then pointed to Steve Jobs aiding to Auriga's creation of the "flash markup model," where Apple was able to capture even small increases in memory with substantial price hikes, even as flash memory prices have declined over the last few years.
The analyst gives this scenario, not pleasant for Apple bulls: "EMC (EMC) employed a similar model effectively with disc drives in the 1990’s, but it collapsed in 2001, as the arrival of serious competition, combined with more discerning customers following the Internet bubble burst, resulted in a sharp revenue deceleration followed by a collapse of gross and operating margins. Some of the same conditions exist today for Apple, so investors should watch market share and any pricing cuts very closely."
But not all is negative; the Auriga analyst is modeling for third-quarter EPS of $8.77 and revs of $33.8 billion, and fourth-quarter EPS of $9.68 and revs of $36.7 billion, both better than the consensus.
He also cites Apple's tremendous free cash flow of about $31 billion in the last fiscal year, and a P/E-to-growth ratio of 0.5 times, making it a cheap growth stock even appropriate for value investors.
Shares of Apple are up about 0.5 percent Thursday.
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