Salient to Investors:
Analysts have cut price targets by 21 percent since the stock peaked in September 2012. Apple is trading at 10.6 times reported earnings versus the S&P 500’s multiple of 15, near the widest discount since December 2000. The last time Apple traded at such a discount, it went on to rally 47 percent in 2001.
The 78 companies that were at least 30 percent cheaper than the S&P 500 at the beginning of 2012 rose 15 percent on average during the year versus the 13 percent gain in the index.
The median analyst predicts Apple stock will rise to $613.40 over the next 12 months versus $780.69 in September 2012. 51 of 64 analysts have Buy ratings, 2 have Sell ratings. Analysts estimate earnings will rise at an average 7.7 percent a year through 2015, and gross margin to remain below 40 percent through 2016 versus the peak of 47 percent in FQ2 2012. Apple’s PEG ratio is 0.58 versus the average of 3.1 for S&P 500 companies, and trails all but four stocks.
Apple investors Gamco Investors, Thornburg Investment Mgmt, and Brown Advisory said the pessimism is exaggerated because Apple still dominates the smartphone and tablet markets and has enough cash to return to shareholders.
Howard Ward at Gamco said Apple is being held to a standard unlike any other company, and is not the zombie it is being valued like.
Bill Miller at Legg Mason says Apple is undervalued and could be worth 50 percent more should it raise its dividend.
Doron Eisenberg at Brown Advisory said Apple is a high-quality company in the fastest-growing areas, and value investors can view the cash-rich balance sheet as a positive.
Connor Browne at Thornburg said there is more room for the company to grow, in which event today’s valuation will look like a great buying opportunity in hindsight.
Donald Yacktman at Yacktman Asset Mgmt said Apple chose to have a high-margin, niche product, thus creating an enormous umbrella for others to come in underneath. Yacktman said the P/E ratio is very deceptive when you look at a stock like Apple, given where the profit margin has been and where it’s likely to be down the road.
David Kessler at Robotti said Apple is not low enough to invest in.
Apple investor John Roscoe at Roosevelt Investment said Apple deserves a similar multiple to branded-products companies such as Ralph Lauren because it has attracted loyal customers willing to pay up for Apple products while Apple’s army of design and engineering people work on the next best thing. Ralph Lauren trades at 23 times earnings, more than double Apple’s valuation.
John Buckingham at Al Frank Asset Mgmt would start adding to positions should the stock drop to $430. Buckingham said we want people to be questioning it.
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