Tuesday, September 30, 2008

Apple (NASDAQ:AAPL): Pullback in Apple shares overdone – reiterate Buy - Goldman Sachs

Goldman Sachs is out defending Apple (NASDAQ:AAPL) noting broader Broader concerns about softer consumer demand will continue to cause Apple shares to be volatile in the near term. However, the recent sell off creates an opportunity as they think Apple will outperform the group through the end of the year, driven by iPhone unit upside and a strong product pipeline. Firm thinks yesterday’s -18% decline (underperforming S&P 500 by -910 bps) more than captures the concerns over Mac growth in a weakening spending environment, making Apple shares attractive at current levels. In the intermediate-term, they think Apple shares could move back to the $145 level, applying a 1x PEG multiple on calendar 2009 earnings estimate recognizing iPhone as current period revenue.

In the near term checks suggest that Apple will meet GSCO's 2.7M unit Mac estimate and probably show some upside to iPhone unit forecast of 4.26M. This, combined with favorable component prices, should drive solid gross margin and earnings at least in line with GAAP earnings estimate of $1.07. At the same time, they continue to expect Apple to roll out new products over the next several months, including a new line up of notebooks within the next few weeks. Valuation

Goldman's 12-month price target of $200 is based on target P/Es, growth-adjusted earnings multiples, cash flow metrics, and DCF.

Notablecalls: I suspect AAPL's due for a bounce here. It still has $6-$7 EPS power in the n-t and possibly $10 EPS power in the L-T.

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