Apple Inc. (NASDAQ:AAPL)’s price target has been cut significantly by analysts at J.P. Morgan in the wake of its latest earnings report. They slashed their target from $725 to $545 per share and removed the stock from the J.P. Morgan Analyst Focus List, although they have reiterated their overweight rating on the stock.
Shares of Apple Inc. (NASDAQ:AAPL) initially rose after the earnings report, which was better than expected, although concerns about gross margins pushed the stock lower again. However, in spite of the J.P. Morgan’s major price target cut, it says Apple may not be as bad off in the gross margin department after all.
In their report, the analysts from J.P. Morgan said they removed Apple Inc. (NASDAQ:AAPL) from the Analyst Focus List because they believe the company’s soft June quarter outlook could drag the stock down. They also said their estimate revisions resulted in a 25 percent decrease in their price target. However, they aren’t writing the company off entirely just yet.
Apple Inc. (NASDAQ:AAPL)’s June guidance was for $33.5 to $35.5 billion in revenue and 36 to 37 percent gross margins. J.P. Morgan’s prior estimates were $43.2 billion in revenue and 39.4 percent gross margins for the company’s June quarter.
In terms of gross margins, they believe investors have been getting ready to see Apple Inc. (NASDAQ:AAPL)’s gross margins reset ever since the company’s stock hit a record $705 per share. In their view, expectations of margin resents have brought the stock all the way down to current levels.
They believe that the company’s “continued penetration” of the lower-priced iPhone 4 in emerging markets and the lower-priced iPad Mini means that the push for lower prices “already has been underway in earnest.” If so, then the company’s “long-term gross margin resent may not be as bad as investors previously feared.”
In their view, the company’s announced capital allocation strategy could also keep its stock from falling lower than a certain point. Apple Inc. (NASDAQ:AAPL) announced it would return $100 billion to shareholders by the end of 2015 through dividends and share buybacks. The plan even received a stamp of approval from David Einhorn, who has been pressuring the company to give some of its extra cash back to shareholders for months.