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Apple Warrants Growth Concerns
We maintain a Hold rating on the shares of Apple, Inc. (AAPL - Analyst Report). The company has established a strong track record of earnings growth, which went from a loss of $0.07 per share in 2001, to an expected profit of $5.18 per share in the current fiscal year.
We believe Apple will continue to post solid results due to continued resurgence of its Mac computer line including MacBook Air, Mac Pro, as well as its increased sale of iPhone 3G, iTunes Movie Rentals, and major software upgrade and developer platform for iPhone 3G. We believe the stock deserves a premium valuation to its peer group.
Although this price appears to be quite reasonable given Apple’s record of growth over the past several years, we are concerned about the potential for slowing growth at its iPod franchise. Although Apple has launched a number of new products, we question whether this will be enough to drive a replacement cycle given a still soft consumer market. As such, we are forecasting a much slower growth rate for 2009.
Moreover, we remain cautious on consumer spending during the remainder of fiscal 2008 and early fiscal 2009. At its current price of $152.65 per share, Apple’s stock is trading at 26.5x our fiscal 2009 estimate of $5.75. We have cut our six month price target to $161.00. This represents a P/E multiple of 28.0x our fiscal 2009 estimate, which is still a premium to the industry, but more accurately reflects the current outlook.
Read the full analyst report on AAPL
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| Market Summary | Jul 31, 2010 13:22 pm ET |
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