On Tuesday Apple’s stock was up $8.40 or 1.55% to $549.07. Morgan Stanley’s analyst, Katy Huberty, wrote a note titled “2014 the Beginning of a New Cycle of Growth and Innovation Monetization” and said that she expected strong December quarter results. On the other side was Societe Generale’s analyst, Andy Perkins, downgrading Apple from Buy to Hold. At least for one day Morgan Stanley carried more weight than Societe Generale. (Note that my family and I own Apple shares).
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Katy Huberty looking for a strong December quarter and new products to provide a catalyst in 2014
Huberty at Morgan Stanley is expecting Apple to generate revenue close to her $57.2 billion estimate (consensus at $57.4 billion along with guidance of $55 to $55 billion) along with gross margin of 37.3% gets her to $14.01 in EPS (vs. the Street at $14.08). She is expecting iPhone shipments between 54 to 55 million with iPads potentially at 26 million, which is above her and the Street’s 23 million.
She is looking for a larger screen iPhone 6 (but who isn’t) and new Internet based services to materially help the company this year. I believe (as does Huberty) that new services that leverage the 575 million plus customer data it has will help iBeacon and a potential mobile payment platform to get Apple’s mojo back and help the stock. The target price for her base case is $630 or up 17% (which matches my target) with the bear case at $440 or down 19% and the bull case at $750 or up 39%.
Andy Perkins downgraded Apple over worries on slowing iPhone 5s sales
Perkins at Societe Generale is projecting revenue of $55.4 billion which is at the low-end of Apple’s $55 to $58 billion guidance and EPS of $13.50 which is just under the mid-point of implied guidance and below the sell-side’s $14.08 and significantly below what buy-siders are modeling (no exact number or range but believe they are above the sell-side).
He is expecting that the company only sold 52 million iPhones, which is a material cut from the 56 million he had been expecting. While he is also expecting new products (probably an iWatch and maybe a TV this year) and China Mobile selling 4 million iPhones each quarter these don’t overweigh his concerns about slowing 5s sales.
It is interesting to note that Perkins expects EPS to ramp from $39.76 in fiscal 2013 to $44.50 in fiscal 2014 to $52.50 in fiscal 2015 and $57.60 in fiscal 2016, which is 10% or greater growth for the next three years. He is keeping his $575 price target which is based on a discounted cash flow where long-term margins decrease from 21.7% in fiscal 2013 to 18% in the long-term.
I have an inherent bias against discounted cash flows as a tool to determine target prices since it is hard enough to gauge the next quarter or two results much less years into the future. I suspect that changing the long-term margin assumption by a small amount (1% or 2%) could materially change the target price (up or down but in this case I believe it would be biased to the upside).
I am at $59.8 billion in revenue and $14.64 in EPS
I am above both Huberty and Perkins and probably above almost all if not all of the sell-side analysts. I believe the September launch of the iPhone at China Telecom, China Unicom and NTT DoCoMo in Japan materially helped sales in the December quarter along with strong iPad sales.
Back above its 50 day moving average
Apple’s shares have been bouncing between $530 and $570 since early December after breaking out of building a base around $520 through most of November. They have also tested their 50 day moving average twice by breaking below it in early January and then on Friday, January 17. In both these cases the stock has moved back above the 50 day moving average.
From a short-term situation the shares seem to be neither overbought or oversold. Their Relative Strength Index or RSI (top third of the chart) is barely above neutral and the MACD (Moving Average of Convergence and Divergence, bottom third of the chart) is very close to neutral.
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