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AAPL Slips On Downgrade
Stocks are falling in early trading following disappointing U.S. economic news including new home constructions falling to the second lowest level on record in February as well as rising wholesale prices due to higher energy and food costs. The crisis in Japan also continues to worry investors as officials temporarily suspended work at the stricken Fukushima nuclear plant after a surge in radiation made it too dangerous for workers to remain at the facility. Shares of AAPL are off more than the markets on an analyst downgrade (see below). Upcoming catalysts for the stock include news regarding Steve Jobs‘ healthy return; iPad 2 sales updates and international launch next week; monthly NPD data to gauge Mac / iPod businesses; iPhone sales updates on new carrier Verizon, the push in China, as well as the launch of the iPhone 5 anticipated this summer; new revenue streams such as video, books / publishing and social (Ping); moving iTunes into the cloud; and the continued evolution and adoption of Apple TV. Shares of Apple trade at 14x Enterprise Value / Trailing Twelve Months Free Cash Flow (incl. long-term marketable securities).
One Rogue Analyst Downgrades Shares Of AAPL (Business Insider)
Apple is being downgraded by JMP Securities this morning from “market outperform to market perform.” The reason for the downgrade? “A notable deceleration in its primary manufacturing partner Hon Hai.” Hon Hai (parent of Foxconn) sales growth is decelerating, suggesting Apple’s business could follow. JMP thinks iPhone sales could just be in line with expectations this year. It also sees iPad sales eating into Mac sales. Apple’s track record has been to crush expectations, so if it delivers earnings that are in line, or just above estimates it could be negatively perceived affecting the stock, moving towards $300.
Wall Street Weighs In On iPad 2 Sales (The Wall Street Journal)
Here are a couple thoughts from analyst notes:
- Gene Munster at Piper Jaffray observed that lines were 104% longer at three Apple retail stores. His team counted 1,190 people in line at Apple’s 5th Ave. store at 5pm on Fri. 3/11. This compares to 730 people in line for the first iPad when it launched at 9am on Sat. 4/3/10. Mall of America, Minneapolis had 334 people vs. 105 last year.
- Maynard Um at UBS believes positive initial demand trends and broader launch could lend upside to his 6 million unit estimate this quarter and 32.9 million units for calendar 2011. Every incremental 100k iPad units equates to ~$0.01 to in fiscal second quarter EPS.
- Mark Moskowitz at J.P. Morgan is more bearish, saying that the iPad 2’s early success is a warning sign of a global tablet bubble. He expects Apple to own at least ~61% of units in 2011, but there is likely upside to this estimate given the early-stage momentum of iPad 2.
- Doug Reid at Stifel Nicolaus believes that Motorola’s Xoom remains a small, but credible player as the tablet continues to gain traction, including during the period after the launch of iPad 2. He believes many investors underestimate current demand for the many unique features available on the Xoom: Adobe Flash, 4G-upgradabliity, expandable memory via microSD slot, USB, built-in HDMI, additional sensors.
- Brian White at Ticonderoga Securities says were again lines in San Francisco and New York Apple stores yesterday as checks indicated that they received much lower quantities of iPad 2 than the initial shipments on Friday, and that they would be out of stock in a matter of hours today. Online shipping dates for iPad 2 have now stretched to 4 to 5 weeks.
Netflix Crushes iTunes In Digital Streaming / Video Market (AppleInsider)
According to The NPD Group, Netflix is the dominant player in America’s digital streaming and downloadable video market, representing 61% of all viewings with Comcast running a distant second at 8%. Apple’s iTunes is in a three-way tie for third place with 4%, or 15x less than Netflix. One reason Netflix’s subscription-based movie business is in better shape than some may think: people can stream a lot of movies for the same monthly price. Read more at Business Insider.
Verizon Operates One In Eight, Or 12.4%, iPhones Now (Chitika)
One day after the device launched to the general public, the Verizon iPhone accounted for 3% of the U.S. iPhone base. Chitika search-based ad network has been keeping a running tally of just how many iPhones are running on both AT&T and Verizon. Using the data at hand (updated frequently), the company has calculated that almost 1 out of every 8 iPhones in the U.S., or 12.4%, are now running on Verizon Wireless’ network. That didn’t take long. Note: Data as of last night.
Apple Delays Japan Launch Of iPad 2 To Focus On Recovery Efforts (All Things Digital)
Respectable. Instead of launching the newest version of the iPad on March 25 with the rest of the world, Apple stores in Japan remain committed to relief efforts. The Tokyo stores have stayed open and became public communication centres after the quake. Check out an email from one of the workers. Given that many components in the tech supply chain are manufactured in Japan, there is also concern that Apple, and touchscreen availability in particular, will be impacted. Read more at Business Insider.
Daily Trader: The Bear Story On Apple, Lower Growth Rates Than Anticipated (Seeking Alpha)
Using EPS and free cash flow rates going forward for Apple of 13% and 17%, respectively, produces a fair value of $411 (pricing model). The stock is trading at a 18% discount based on yesterday’s close. Apple needs to sustain the impressive growth rates but the larger the company becomes, the more difficult that will be. If the longer term average rates were cut to 10%, the fair value would drop to $349 at a minimum.
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