According to a report from Baird equity research, the investor sentiment for Apple Inc. (NASDAQ:AAPL) has turned decidedly negative, this sentiment is confirmed through stock action, recent investor meetings and conversations. Determining a hard bottom is difficult, though the research firm note that the stock is now trading near its recent P/E trough of roughly 10x forward earnings, with fear creating opportunity. Ultimately, analysts from Baird expect solid near-term fundamentals to allay worst-case concerns, with several potential catalysts in 2013. The firm reiterate its Outperform rating and $750 target price for Apple Inc. (NASDAQ:AAPL).
Investor concerns (Mentioned in brief points).
The report says, based on recent investor meetings, there are a litany of Apple Inc. (NASDAQ:AAPL) concerns:
- Pace of innovation slowing. Perhaps, though multiple opportunities still ahead.
- Recent software shortfalls. Yes, though Apple Inc. (NASDAQ:AAPL)’s software/hardware integration remains tops overall.
- Samsung competition. Ditto the above answer.
- Gross margins unsustainable. Long-term questions, though iPhone 4 could be a positive proxy for margin improvement in C2013.
- Current supply shortages. Checks suggest improvement, though not perfect.
- Product cycle visibility. iPad cycle change?
- Replacement cycle challenges. Law of large numbers puts onus on market segmentation and new products/markets.
- iPhone developing market strategy, or lack thereof. Huge opportunity, though don’t expect near-term solution.
- Identity crisis without Jobs. A well-known risk.
- Macro impacts. Europe a concern, though U.S. and Asia demand look strong.
Potential catalysts.
- Upside to estimates. Upside to estimates could allay demand and supply concerns.
- China upside. China Mobile remains a tantalizing opportunity – 3G or 4G.
- Apple Inc. (NASDAQ:AAPL)’s iTV. Though timing and approach remain unclear, this remains a sizeable potential opportunity, and importantly could help reaffirm its innovation edge.
- Greater software innovation. Long a hallmark, recent software innovation has arguably lagged. We believe one big hit, whether mobile wallet, better maps integration or something else, could quickly reverse innovation concerns.
- Expanded dividend or buyback. Though having roughly 70% of its cash overseas presents complications, an expanded dividend or buyback would likely be viewed positively.
Current Valuation.
Apple Inc. (NASDAQ:AAPL) is currently trading at 10.2x research firm’s calendar 2013 EPS estimate, vs. big-cap tech at roughly 10.0x. That compares to the S&P 500 at 12.5x ’13E. Ex. current cash, Apple Inc. (NASDAQ:AAPL) is trading at 7.8x firm’s calendar 2013 EPS estimate, with a 2.0% dividend yield. Baird note that Apple Inc. (NASDAQ:AAPL) is currently trading near its historical trough NTM P/E multiple.
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