Monday, September 29, 2008

Apple (NASDAQ:AAPL): Actionable Short Call

Apple (NASDAQ:AAPL) shareholders are going to bleed from their eyeballs today:

- Morgan Stanley is out with a downgrade to Equal Weight (from OW), lowering their tgt to $115 from $178 revising FY09 EPS growth to 6% (9% below the consensus forecast) on the back of several concerns. First, PC unit growth is decelerating and the remaining source of growth is increasingly in the sub-$1,000 market where AAPL does not play. Second, even in the best of scenarios AAPL’s EPS growth will decelerate meaningfully from June quarter levels. A combination of tough compares and investments in iPhone growth drive December quarter EPS to a decline of 8% YoY (down from +29% EPS growth June). Lastly, they believe multiples for high growth stocks will continue to compress in the current environment and in the context of 6% FY09 EPS growth assumption (and consensus estimate of 15.5%) they don’t believe AAPL is immune to this trend.

Firm continues to believe AAPL’s 2-3 year market share story is intact (but now more back-end loaded) and if the market is willing to look through near-term estimate reductions (and increasingly at cash flow), the stock could work from recently reduced levels.

- RBC Capital is downgrading AAPL to Sector Perform on: 1) reduced visibility to growth, margins; 2) elevated risks to valuation.

Sept RBC IQ/Changewave data (4,300) shows Mac purchase intentions suddenly moderating, with 29% intending to purchase a Mac laptop next 90 days, down from 34% Aug. 26% intend to purchase a Mac desktop, down from 30% Aug. These are the biggest declines in 2-1/2 years. In a separate survey, Sept RBC IQ/ Changewave data (4,100) shows 40% of consumers plan on spending less on electronics next 90 days, the weakest outlook ever seen.

While Mac momentum remains strong (16% Q/Q, 34% Y/Y) RBC Q4 Mac outlook becomes 2.9M (3M prior) and we see elevated risk for disappointing Q1 guidance, below street at $11B and $1.75. They still expect Apple's global PC share to rise to 4.1% CY09, from 2.9% CY07; F09/F10 iPod unit outlook drops to -3% Y/Y (prior 10-12%).

Notablecalls: I think AAPL could test the $120 level today and there could be risk to even lower levels. It's all about what RIMM had to say. Not to mention DELL's recent comments re: demand and pricing.

Actionable short anywhere above the $123 level.

These two were the biggest AAPL bulls.

1 comment:

The HardHead said...

Anyone buying Scott? I'm all out of tissues due to Apple. Remember one MAJOR thing about MS analyst on Apple. Katie Huberty estimates missed REV last quarter by $1 Billion - yes go look it up yourself. Why they continue to let this woman analyze Apple is beyond me. She has been the worst analyst on Wall Street when it comes to forecasting Apple's financial situation.

Read this nice article from Seeking Alpha - http://tinyurl.com/49w45j

RBC markets is owned by none other than the Royal Canadian Bank - the guys that financed RIMM if I recall correctly... conspiracy? Na, they don't do that kind of stuff on Wall St.

I loaded up on Apple at 109 - totally unreal with a company that has nearly $30 Billion in CASH!!!

Also next report in Oct Apple will be adding the deferred $$$ - Wacky Apple accounting at its best! Apple will blow away the street this qtr - guidance will be great with the stupid downgrades today.

GREAT SITE NC - thanks for your hard work and time!

HH