Apple Inc. (NASDAQ:AAPL) is a good stock to own but not for the June quarter. Analysts at Raymond James are out with a new report titled “Many Reasons to Own Apple, but the June Quarter Is Not One of Them”. Raymond James recently cut their price target for Apple Inc. (NASDAQ:AAPL). Further details below:
Recommendation from Raymond James: The analysts maintain their outperform rating on shares of Apple Inc. (NASDAQ:AAPL) based on the belief that the company should return to EPS growth following the June quarter. They have adjusted their earnings estimates for what they believe will be an earlier iPhone product launch this year than the previous two years. This will likely lead to weaker iPhone shipments in calendar 2Q as customers wait for the new model and as Apple trims channel inventories in front of the launch. However, it will likely lead to far greater September quarter shipments, with little change to annual iPhone shipment estimates overall.
Consensus among component suppliers suggests a mid-calendar 3Q iPhone 5S launch
A number of component suppliers to Apple Inc. (NASDAQ:AAPL) have recently indicated an expectation of earlier seasonality this year than last year, both in terms of sluggish orders near term and expectation of growth after a springtime lull. This appears consistent with at least one new iPhone model (they are presuming iPhone 5S branding) earlier in calendar 3Q this year than the late September launch of the iPhone 5 last year. This should cause much lower iPhone shipments in calendar 2Q and higher shipments in calendar 3Q.
Doesn’t it make sense that iPhone share should be greater than Mac share?
The analysts estimate that Apple’s Mac product line garners ~10% unit share and 25% revenue share of the consumer PC market even without any application/ecosystem advantage. For iPhone revenue to cease growing at today’s level, one would have to assume that Apple Inc. (NASDAQ:AAPL)’s ultimate unit/revenue share in the smartphone market will simply match the Mac product lines despite massive application ecosystem advantages. They believe the reasonable bet remains that Apple can continue to grow the iPhone business from current levels.
Estimates
Raymond James’ FY13 EPS estimate is raised from $43.64 to $43.91, while 2014 EPS estimate is lowered from $51.36 to $48.45. IPhone shipment estimate for June is now 24 million (below Street estimates of 32 million), 150 million for FY13, and only 156 million in FY14 (no new products in forecast).
Valuation
Apple Inc. (NASDAQ:AAPL) is clearly slowing and the valuation has collapsed as the obvious investor fear is that margins will compress and EPS revisions will continue downward. Their belief is that Apple Inc. (NASDAQ:AAPL) is building an ecosystem that is growing and that consumers rarely leave (a view shared by others).
They believe this builds in much more sustainability into product sales than traditional consumer-focused product companies. Furthermore they believe an S&P 500-like multiple (~13.8x) on calendar 2013 estimates is a reasonable valuation target for Apple Inc. (NASDAQ:AAPL) given its double-digit top-line growth and expectations of renewed EPS growth later in 2013. This equates to a $600 price target for Apple Inc. (NASDAQ:AAPL) and a 7x EV/EBITDA multiple, which is in line with a broad group of large-cap technology peers.
