Analyst: AAPL Could Take 15% Hit from Jobs Leave

| Apple Stock Watch

Gleacher & Co. analyst Brian Marshall believes that a US$300 support level exists for Apple in the wake of concern over CEO Steve Jobs’s medical leave of absence that was announced Monday. With Friday’s closing price of $348.48, that would represent a 15% hit should the stock dip to those levels.

“[It’s] obviously a terrible thing for Steve personally and market reaction won’t be kind either,” Mr. Marshall said in a research note to clients obtained by The Mac Observer. “I don’t the stock breaks $300 level due to the following…real earnings power in CY11 is ~$22-23 and by applying a discounted multiple of ~12x and adding back net cash per share of ~$50…that implies a floor of around $300 in my view.”

To break that down a bit, Mr. Marshall believes that Apple’s business should produce between $22 and $23 in earnings per share over the course of calendar 2011. A 12x multiplier on those earnings is a fairly standard multiplier for tech companies in the current market, but one that is lower than where Apple is currently valued, as the markets have put great stock (pun intended) in Apple’s future, based in part on the contributions of Steve Jobs.

Apple’s enormous cash holdings of about $49 billion (as of the last quarter) represent about $50 per share, and gets added on top of the earnings multipliers used by analysts to set their price targets.

The reasoning that Mr. Marshall is laying out for investors is that with the standard multiplier and all that cash, the company is still worth at least $300 a share, and that the markets won’t push the stock below that level.

U.S. stock markets are closed Monday in observance of Martin Luther King Day, a U.S. federal holiday. In Europe, shares in AAPL traded lower in Frankfurt, ending the day 6.2% lower. Trading in AAPL will resume in the States on Tuesday morning, and Apple reports its December quarter results Tuesday afternoon, after the markets close.

There will no doubt be many and more questions about Mr. Jobs from analysts during the conference call that will take place Tuesday, including questions about a succession plan for the CEO spot. Apple has not made its succession plans public, though investors and analysts alike have asked the company to do so.

*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.  

Sign Up for the Newsletter

Join the TMO Express Daily Newsletter to get the latest Mac headlines in your e-mail every weekday.

11 Comments Leave Your Own

Dr. Willshire

A hit should be OK because the products will have the chance to improve.  I think it would be a good thing if he left for good.

[Shorterned URL deleted - Bryan]

DrParis

I couldn’t disagree more strenously with the comment by DrWilshire. Steve Jobs is our DiVinci. Why wouldn’t everybody connected to or interested in Apple’s future want him involved every day possible? It makes no sense to say he should stay away for good

sewdog

Warranted or not, AAPL shares will trade down significantly tomorrow.  MY guess is anywhere from -30 to -50 at some point tomorrow.  The wonderful earnings news that we will get after the close will not be much of a salve because earnings reports are looks at past events and the Steve news focuses investors on the future.  Ironically, I have felt that AAPL’s multiple has always been lower than it should be for just this reason bc certainly a company growing revenues and earnings by 40% or more and with a healthy CEO should have a p/e greater than 15, right?  Apple’s p/e is lower than it should be because of the concern about Jobs’s health and the ability of the company to execute in his absence, but it appears that even an abnormally low p/e won’t save AAPL from a tidal wave of panicked selling tomorrow.  Since the contrarian play is almost always the correct one, I’ll be looking at buying some LEAPS but may also buy some Feb. puts in case the selling in the shares is protracted.

Intruder

How does a stock hit give the products a chance to improve?
That makes absolutely no sense.

Intruder

Ahh. I see, Dr. Willshire. You are just using these articles to post your links to applehaters.

What? Can’t generate traffic without spamming other sites?

Bryan Chaffin

Dr. Willshire’s post was a troll for a site called Apple Haters, with the URL shortened to disguise the destination.

Oops, Intruder was ahead of me. smile

Tiger

Bryan, thanks for policing the trolls.

Please keep it up. There are plenty.

:-O

Lee Dronick

Oops, Intruder was ahead of me

A6 pilots were always gutsy fellows. Especially if flying flak/troll suppression when they went in ahead of the of the other bombers.

Getting back on topic. The good doctor has a point. Steve has been responsible for the some of the greatest tech products in the last 3 decades. However, that doesn’t mean he isn’t the only one at Apple capable of creating and bringing to market insanely great products and services; Jonathan Ive comes to mind. Not to mention we don’t know if Steve has been grooming his replacement, I suspect that he has. Steve’s replacement could take Apple to higher places than we can imagine.

jsand

While I am a physician, I choose not to speculate about the possibilities involving Mr. Job’s complicated medical history. Rather I want to make the following observations. First, this illness exacerbation did not happen suddenly or yesterday,and so the timing of the announcement was deliberate. A Monday holiday, with markets closed, a day before earnings release. Good timing to mute or minimize “emotional” selling. Secondly, I am also taking this as an unwitting reveal of a very strong hand vis-a-vis earnings that will substantially exceed street expectations. Think about how it would be played if it were a weak hand instead. Taking at face value his fondness for Apple and its employees (most of whom enjoy a vested interest in the stock price through options grants), you would not time this announcement in a way that would give the stock price a double whammy. You would do it sooner, or later, but not in tandem. In poker, this might be a tell. In stock trading, it’s the next best thing to insider information without the illegality. I only ihope the stock price adjusts downwards early Tues. so I can buy some more.

Terrin

The people selling are not super bright if the reason they are selling is Jobs taking time off. The reality is Jobs isn’t running day to day operations anyway. Further, he hand picked Tim Cook to take care of business. The last time he took time off, the company continued to roll as normal.

As Warren Buffet says, buy when people are selling, sell when people are buying.

mhikl

The concept that one man (or woman) is going to ride in and save the day is so 20th C. I question whether this has been Apple’s way so much since Steve’s illness began six or so years ago; it’s such a hit and miss strategy just looking at the competition. So I am not so worried about Apple’s future with or without Steve Jobs.

I am concerned about the hate that issues from the Apple haters who are finding their way to the MO forum. Censorship is necessary in any society where infiltrators, in our case trolls,  assault with their own agendas apposed to the intent of the forum.

The hater trolls who don’t go far enough to be banned, should be ignored. Responding to them only encourages their spiel.

Log-in to comment