Apple's earning report didn't please regular session investors any more than it did Wednesday's after-hours traders, as they sent the stock plummeting 12.35 percent to US$450.50, a drop of $63.505 per share. Analysts spent the day digesting Apple's earning report and jockeying for position in amidst all the bearish sentiment.
$AAPL Chart for January 24th, 2013
Source: Yahoo! Finance
On Wednesday, Apple reported record revenue and earnings, met or almost met estimates on revenue (depending on who you ask), beat earnings estimates, and offered guidance below analyst expectations. In addition, Apple CFO Peter Oppenheimer announced that from now on Apple would offer guidance that was not artificially conservative and would include a realistic range of what the company will actually do.
While the earnings beat was solid, Wall Street focused on the guidance miss. More specifically, the guidance miss reinforced the meme of the last few weeks that Apple's growth is slowing, and that demand for iPhone is in some way waning.
Thursday's Wall Street story spanned the gamut from analysts like Peter Misek of Jeffries & Co. who cut their price target, their rating, and their estimates for $AAPL to Ben Reitzes of Barclays who cut his price target but maintained a "Buy," to Shaw Wu of Sterne Agee who was more upbeat, but also maintained his "Buy" and cut his price target.
Peter Misek of Jeffries & Co. took a very bearish view of Apple's earnings report. He told clients that Apple's iPhone is slowing down, that margins will continue to fall, and that Apple's new guidance method means there will be less upside.
This last bullet point is particularly interesting since Apple's guidance has long been understood to be an exercise in sandbagging. Much of $AAPL's value has been determined by analyst estimates that were themselves a game to figure out how much Apple would beat its own sandbagged guidance.
In other words, Apple beating its own guidance long ago ceased to be an upside surprise as the focus shifted to whether Apple would instead beat analyst estimates. Mr. Misek appears to be telling his clients that this game will become less of a game and that this will make the stock less valuable.
Feel free to make of that what you will.
Mr. Misek cut his price target from $800 to $500 and his rating from a "Buy" to a "Hold."
Ben Reitzes of Barclays took a much more pragmatic look at Apple's earnings report. In a note to clients obtained by The Mac Observer, Mr. Reitzes wrote, "We believe a capitulation process is underway – and while painful – it is healthy since the loftiest expectations should be reined in quite a bit."
He wrote, "We believe that investors were very disappointed to hear that Apple is happy with its screen size for the iPhone 5, which seemed to reject the larger-screened iPhone idea. However, the answer Tim Cook gave, in our opinion, was a typical Apple answer, and we do believe that a larger screened iPhone is in development – but may not make it into the line-up this year."
Note his comment about investors wanting Apple to play follow the leader with a larger iPhone. This has definitely been a part of the shift in investor (and pundit) sentiment regarding Apple, and it absolutely played a role in Thursday's $AAPL sell-off.
Mr. Reitzes said that new product launches this Spring could change investor sentiment on Apple, but until and if, it was difficult to see that sentiment improving.
"The iPhone 5S could have very interesting services attached to it that create some excitement," he wrote. "The new services in iOS 7, married to the 5S are in fact the real hope that Apple has in regaining some excitement in the story this year."
The analyst lowered his EPS estimates for the March quarter to $10.01, down from $12.00, and his fiscal 2013 ES estimates down to $44.56, down from $49. He cut his price target to $575, a 22 percent decline from his previous price target of $740.
Shaw Wu had one of the most upbeat reactions to Apple's earnings report. He noted that Apple beat consensus earning, calling it a "sizable EPS beat on slightly light revenue." He also noted that Apple beat consensus gross margin estimates. He called iPhone shipments a beat, iPad shipments a slight miss, and wrote that Apple's Mac sales were "much lower than consensus."
In a research note obtained by TMO, Mr. Wu told his clients that Apple, "reported the strongest quarter in its 36-yr history adding $16 billion in cash but below expectations of a bigger beat that investors have grown accustomed to. Its outlook was vintage conservative but warned may be more realistic than [it has] historically been."
He added, "This is bitter medicine but we see as the right move in resetting consensus. We don't think the AAPL growth story is over but shares will likely languish until confidence is restored."
He lowered his fiscal 2013 estimates to $187.4 billion, down from $192.6 billion, and his EPS estimates to $47.05, down from $49.50. Consensus estimates are still fluctuating as analysts jockey for position in the wake of Apple's earnings report, but currently sit at $189.7 billion in revenue and $48.03 in earnings.
He cut his price target to $715, down from $840, and maintained a "Buy." His price target is based on a 10X multiplier of fiscal EPS estimates of $57.17, plus the $145 per share in cash that Apple holds.
*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.