Wednesday, January 23, 2013

Apple -9.83% after market hours

-49.76 (-9.68%)
Real-time:   9:59AM EST, Thursday 24 Jan
Some of the titles
Apple Inc. (AAPL): First To The Tech Grave-Yard?
Could This Be the Demise of Apple Inc. (AAPL)'s Earnings?
Apple's iPhone disappointment fans doubt on growth
Apple Sales Gain Slowest Since ’09 as Competition Climbs

I should have sold the shares today Wednesday, as I already have a profit (yes I know I use too many times the word 'should').

I should have made the following analysis:
1. Good results, shares go up on Thursday, so what
2. Bad results, the shares go down
So in order to minimize the risk, selling would have been the best option, but my buy and hold 'strategy' does not let me do it even if I read somewhere that only billionaires like Warren Buffet and Bill Gates can afford nowadays to be long-term investors.

Just came back from the dentist. It takes so much time to properly clean your teeth: brush properly, floss, use a Sulca brush.

I was thinking Apple should make a product iMouth. It would be like a mouth guard with small electric rotating brushes that go between teeth and along the gum line, in short proper teeth cleaning, and you could watch TV at the same time.
It might be expensive, let's say $1,000 but wouldn't you pay this amount so that you saw your dentist only for the annual check-up? Yes, I thought so.

Here it is how Wall Street is reacting. I like especially this "Given the decline in the share price, we are lowering our 12-month price target to $888.00 from $1,111.0." How did they come up with these very nice looking numbers? 1,111 not 1,039 or 1,183 for example or why not 939 or 856 instead of 888. Did they really make any calculations?


Capitulation Process Seems Well Underway: "It seems the reaction to this EPS report is universally negative – especially since AAPL gave subdued guidance and changed the way it does it (they really mean it). We believe a capitulation process is underway – and while painful – it is healthy since the loftiest expectations should be reined in quite a bit. This spring, Apple should be readying a bevy of new products and services – and when the builds for these products become known – shares may act a lot better. We have seen sentiment turn quickly before with other leaders like Facebook (in 2012) and Google (in 2011). While this recent sell-off and Apple’s execution of late has tested our patience, we will evaluate Apple from here based on whether these products and services create the kind of excitement we are used to. Maintain OW rating."

Two key (interrelated) questions related to Apple are 1) whether the company has lost its competitive edge and 2) what the right margin profile is longer term. We believe Apple maintains its premium brand image (e.g. iPhone ASP) but needs to adapt to marketplace demands and abandon misperceptions about “one-handed ease of use” (yes many like it, but many don’t) by broadening its iPhone lineup – the same way it abandoned its 7” tablet stance and delivered a best-in-class product. We believe margins with multiple phone form factors and a lower-end offering for emerging markets could be structurally lower, but this is very much discounted in the share price as discussed below. We lower F13/F14 EPS from $48.95/58.38 to $44.79/51.71 reflecting lower iPhone share, mini cannibalization, and lower gross margin. We cut our price target from $680 to $575 reflecting lower estimates and risk associated with its product transition. BUY maintained.

Three steps to a recovery: none coming imminently, patience required. First, a new product cycle (we expect a high-end iPhone refresh and lower end iPhone later in 2013). Second, increased carrier expansion: while this is clearly happening slower than we thought, we still believe it's likely over 12 months. Third, increased cash distribution: Apple ended the quarter with $137bn of net cash some ~30% of market cap and 31% onshore so the capacity to distribute exits. While all these catalysts are plausible, none are imminent in our view, meaning patience is required.

We are buyers of AAPL on the pull back following the company's December quarter earnings report based on our belief that Street numbers will be adequately reset and investors will return to the stock once the potential of new products comes into focus over the next 3-6 months. While we are adjusting our price target to $767, we remain optimistic about shares of AAPL.

The weak Q2 dynamics seem to support our view that Apple is moving into an ex-growth phase in which unit growth is likely to come increasingly at the expense of gross margin declines. The net effect is limited earnings growth, EPS that likely tops-out at $50, which is likely to attract a multiple little better than comparable ex-growth peers such as Microsoft and Cisco. An 8x ex-cash multiple on our EPS forecast of $50 plus $89 in excess cash drives our fair value of $490.

We stand by our recent downgrade and continue to rate the shares Neutral. On lower estimates, our price target falls to $500 from $575.

AAPL reported revs of $54.5B and EPS of $13.81 which beat EPS expectations (vs. Street at $54.5B/$13.33; DB at $53.4B/$12.55). Upside was led by iPhone (48M vs. DB at 45M) and iPad (22.9M vs. DB at 22.0M) which offset light Mac results (4.1M vs. DB at 5.4M). Despite the EPS beat, AAPL revised its guidance format and the combination of margin pressure and decelerating iPhone growth implicit in guidance raises growth concerns. We reset estimates and cut our price target to $575. Trading at $460 in the aftermarket (~7x PE ex cash) we view AAPL as undervalued; maintain Buy. 

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