07.28.08 

aapl: RAISING TARGET PRICE AND 2009 OUTLOOK ON BETTER MAC AND IPHONE UNITS
We have updated our forecast for Apple after the Company reported its June quarter results. We expect Apple's stock to continue to outperform the broader tech market and believe that despite the possible near-term consumer spending challenges, that Apple continues to execute on its strategy and will demonstrate excellent growth. iPhone 2.0 is clearly a hit, and we still believe that it has the potential to be the next major category driver for Apple as iPod growth continues to slow into this holiday season due to the law of large numbers, phone cannibalization, and category saturation. We would use pullbacks in the stock to accumulate shares around a core long position going into 2009. We are raising our price target from $238 to $257, which still reflects an historic mean level of 43x forward earnings, now based on our FY:09 EPS estimate - ex-interest income and options expense, plus cash. Contact Us for Full Report - PDF

04.24.08 

aapl: SOLID CQ1; EXPECT A LULL IN THE STOCK AHEAD OF EXPECTED NEW IPHONE PARTNERS AND MODELS IN THE JUNE/JULY TIMEFRAME
Apple reported March quarter results of $7.51B in revenue and $1.16 in pro forma EPS versus our estimates of $6.86B in revenue and $0.98 in pro forma EPS. The upside in the quarter came from greater revenue, but was mostly driven by a lower tax rate and share count, with adjusted gross margins of 33.2% about inline with our 33.5% estimate. Apple performed well in March and the unit numbers for the iPhone are promising, in our opinion, despite the apparent slower traction in Europe. With the Mac franchise as the core growth driver, we are still optimistic about the prospects for the iPhone, and we expect Apple to use many of its levers (e.g., price, new features, new models, and new carriers/distribution partners) to accelerate unit sales throughout the year. We are raising our price target from $218 to $238, which still reflects a historic mean level of 43x forward earnings, now based on our FTM EPS estimate - ex-interest income and options expense, plus cash. Contact Us for Full Report - PDF

04.07.08 

aapl: PROPRIETARY VIZU WEB POLL DATA SHOWS SLOWING IPOD AND IPHONE TRENDS
We conducted an internet poll using web polling company Vizu to gather global consumer data to better gauge consumer buying trends for the iPod and the iPhone in 2008. The poll was comprised of four separate questions that were answered independently, with two questions attributed to the iPod and two to the iPhone. The population sample contained a little more than 100 voters, with a margin of error of plus or minus 10% at 95% confidence. Our results, not surprisingly, indicate weak consumer buying trends for those two Apple products in 2008; however, they also indicate that many people actually did buy an iPod or an iPhone in CQ1. Given the weakening economic outlook coupled with consumer trends in discretionary spending, both products have strong non-buying trends at around 80% in the absence of someone changing his or her mind if new models become cheaper and have enough new functionality to put someone over the edge. As such, we see iPod and iPhone buying trends likely declining in the short term (CQ2) and likely slower demand overall in 2008 in aggregate. Contact Us for Full Report - PDF

01.23.08 

aapl: RECORD RESULTS AND SOLID EXECUTION, BUT LOFTLY EXPECTATIONS; SEE CATALYSTS RETURNING IN MAY/JUNE TIMEFRAME; STOCK MAY DRIFT UNTIL THEN
Apple reported December quarter results of $9.61B and $1.76, versus our estimates of $9.96B and $1.63. The upside in the quarter was driven by better gross margins, resulting in an adjusted 34.9% margin versus our estimated 33.0% and guidance of 31%. Although Apple has sold off with the market since the beginning of 2008, as well as after hours last night post its report, we believe that shares are under-valued. However, we cannot identify any major catalysts, now that MacWorld has passed and December quarter results have been reported. We would use weakness over the next quarter to patiently accumulate shares on dips in anticipation of more new products in the May/June timeframe, including an updated iPhone with 3G and possibly GPS/greater storage capacity, and an anticipated refresh to the MacBook line (beyond the ultra-portable Mac Air) based upon the recently announced chipsets from Intel (INTC: Not Rated). The Mac franchise is the most impressive business line, in our opinion, and we expect 2008 to be another record year even with real risks out there regarding US and global consumer discretionary spending. We are raising our price target to $218 from $203, still reflecting a historic mean level of 43x forward earnings on our updated CY:08 estimates - ex-interest income and options expense, plus cash. Contact Us for Full Report - PDF

10.23.07 

aapl: STICKING WITH THE WINNING HORSE; WE SEE MORE STOCK APPRECIATION AHEAD
Apple reported September quarter results of $6.2B and $1.01, versus our estimates of $6.3B and $0.75. The upside in the quarter was driven by better gross margins (yet again), resulting in an adjusted 33.8% margin versus our estimated 31.0% and guidance of 29.5%, and also by a much lower tax rate, coming in at 25.1% versus previous 32% guidance. Although valuation may appear rich to some on near-term estimates or possibly more fully-valued on C2008 estimates, we believe Apple's shares will continue to appreciate from current levels. Apple's Mac business is growing 3-4x the industry currently and is the center point of our enthusiasm on the shares going into December and 2008. The iPhone and iPod businesses and the new Leopard OS should also contribute to a forecasted record December quarter as well. We are updating our price target to $203 from $172, to reflect a historic mean level of 43x forward earnings on our new 2008 estimates - ex-interest income and options expense, plus cash. As the deferred revenue on the iPhone business becomes a more significant piece of the cash revenues in 2008E, we believe Apple's multiple will likely remain at or above 40x, and also note that when the iPod business was ramping in late 2002 to 2005, Apple's forward multiple was mostly above the 40x five-year median and 43x five-year mean. Contact Us for Full Report - PDF

09.21.07 

aapl: STRONG PRODUCT DEMAND; RAISING ESTIMATES FOR H2:07 DESPITE NOW MODELING FOR LOWER IPHONE ASPS
We are updating our model to reflect lower asp and slightly better unit assumptions for the iPhone, post the price cut to $399 in the US and with two major European carriers, Deutsche Telecom/T-Mobile and O2, announced this week with pricing of $472 and $459 before VAT (using current exchange rates), to be available November 9th. Orange/France Telecom is expected to formally announce a deal and pricing availability in short order as well. Additionally we are raising our estimates for iPods in the current quarter given the strong demand for the new line up we have found in ongoing channel checks, and are now modeling 12M units. Despite an over-hyped phone, in our opinion, we believe Apple's business continues to accelerate and is firing on all cylinders going into December, its typically strongest quarter of the year, which we believe is exactly what investors should want to see. We believe the only wildcard in the September quarter remains the gross margin that Apple will realize given the tighter component pricing in July and August, particularly in DRAM, Flash, and panels/other PC components, likely offset somewhat by intricate supply agreements/prepayments that the Company has in place. We continue to model a 31% gross margin for the September quarter versus guidance of 29.5%, but think that other estimates and consensus thinking may be for significantly higher margins and this could prove to be a short-term disappointment in October if the margins disappoint the bulls. However, most component prices are dropping steadily again in September and we believe that the component environment should again be more favorable in the December quarter versus some of the industry tightness likely experienced in the beginning to middle of the September quarter, and are raising our estimate 100bps to 32% for December, which could still prove conservative. We are maintaining our Buy rating and $172 price target which continues to be based upon 40x our C2008 EPS estimate - ex interest income and options expense, plus ~$15.50 in cash per share. Contact Us for Full Report - PDF

07.26.07 

aapl: ANOTHER BLOWOUT QUARTER ON GROSS MARGIN UPSIDE; NEW PRODUCTS AHEAD; REITERATE BUY RATING
Apple reported June quarter results of $5.4B and $0.92, versus our estimates of $5.1B and $0.70. The upside in the quarter was driven by another very large increase in gross margins due to falling component prices, resulting in an adjusted 37.1% margin versus our estimated 33.5% and guidance of 32.0%. The Company is guiding conservatively for September in terms of margins, both gross and operating. We continue to model above guidance for September at a 31.0% gross margin, despite management's comments on the conference call trying to make a nearly 760bp q/q decline in adjusted gross margin guidance credible. We are rolling our valuation metrics forward to our new C2008 EPS estimates (from FTM previously) and are raising our price target to $172 (from $125) based upon 40x our updated C2008 EPS estimate - ex interest income and options expense, plus ~$15.50 in cash per share. Although valuation may appear rich to some, we argue that Apple's multiple will approach and could even surpass its previous five-year historic median level of 40x forward earnings on 2008 estimates as we progress forward into this year and next, if Apple can continue the performance and acceleration in its Mac franchise, iPod business, and nascent cellphone business, which we believe that it can. In addition, as the deferred revenue on the iPhone business becomes a more significant piece of the cash revenues in 2008, we believe an expanded 40x is justified, and also note that when the iPod business was ramping in late 2002 to 2005 Apple's forward multiple was mostly above the 40x five-year median. We are currently modeling 9.5M phones in C2008 and believe there is a bright future in the category as Apple has many levers to drive revenue as it expands including price, features, software, and upgraded hardware (3G, storage points, etc.). We are reiterating our Buy rating on the shares. Contact Us for Full Report - PDF

07.02.07 

aapl: IPHONE LAUNCHES; OPENING WEEKEND CHECKS SHOW GOOD SALES, BUT STILL LOTS OF AVAILABILITY; MAYBE NOT GREAT
Apple released its iPhone on Friday night, with Apple and AT&T stores opening at 6:00 PM local time in the US to begin sales of the most anticipated consumer electronic device that we can think of in recent years. While we documented the crowd and fanfare at an opening outside the Apple flagship store on 5th Avenue in New York City, other Apple stores all over the country seemed to experience long lines, and many had notable customers, such as the mayor of Philadelphia and Steve Wozniak in Santa Clara, physically waiting in long lines to procure their coveted smartphones. Our checks over the weekend show that most Apple stores still had availability as of late afternoon on Sunday. AT&T stores were sold out across the board and were pushing their direct fulfillment where customers would pay now, but not get charged until the device shipped direct to them in 3-7 days. AT&T stores received limited quantities of phones, ranging from 10 to 90 in two days (including second shipments on Saturday) at the stores we contacted. Apple's own iPhone availability information on its website showed availability as a yes or no, as of 9:00 PM the previous day. As of Saturday afternoon, 18 out of 36 Apple stores had no availability in California, the largest total number of any state by far; almost all the stores outside of California had availability except for a handful. Our own checks on Sunday at more than 30 Apple stores revealed that the 8GB was selling much better than the 4GB, sellouts were still almost all in California stores, and most stores said they were getting daily shipments and expected more on Monday, but many noted that the 8GB may not get re-stocked as quickly. Lastly, in visiting an Apple store in the suburbs of New York, we demoed the iPhone firsthand and also observed the crowds playing with or experiencing the iPhone, with very few actually buying it. Rest assured after demoing the iPhone firsthand, we believe that it is an amazing device, with the only poor experience being the internet browsing experience on the lackluster and slow Cingular EDGE network (which we've been using for mobile internet access for roughly three years already on our Blackberry 8700). In summary, the initial weekend of iPhone sales appears strong to us, but with so much availability, sales could have been a lot stronger, in our view, given the supply on hand. We do not feel that we or anyone can accurately quantify the units sold by extrapolating from channel checks, but expectations ranged from a few hundred thousand to a million and a half, in our opinion. Apple may issue a press release on Monday if the unit numbers are spectacular, or it may just wait since the Company is now in its quiet period for the June quarter. We continue to believe that the expectations are extremely high for this product and the risk/reward in the stock at $125 is not very favorable until we get a better handle on how many iPhone sales Apple can manage with its first generation device and a better picture on the timing and ramp of the international carriers. Contact Us for Full Report - PDF

05.30.07 

aapl: RAISING JUNE ESTIMATES AND TARGET TO $125; SEE WWDC AND IPHONE LAUNCH AS NEXT CATALYSTS
We are increasing our estimates for the June quarter due to the falling to stable component prices q/q for DRAM and NAND memory specifically, to a 33.5% gross margin estimate (up from 32.5% previously and 32.0% guidance), and increasing our price target on the shares to $125 from $115 previously. Component prices will not be as big of a tailwind as in CQ1, in our opinion, (actual 35.3% gross margin), but with DRAM on track to decline ~40-50% and NAND prices mostly slightly up to flat q/q (after a huge December quarter to March quarter drop off), it should still flow through to very strong gross margins for the June quarter. Additionally, we believe the upcoming iPhone launch will be a catalyst for modest multiple expansion in the stock price due to the planned deferred revenue recognition of iPhone sales. We estimate that the accounting recognition alone takes approximately $0.20 in EPS off C2008 using our current units and forecast ramp, which translates into ~2 multiple points on the stock using current market multiples. We believe that continued new product offerings expected this year and beyond will continue to drive growth for Apple and we are maintaining our Buy rating and increasing our price target to $125, which is based upon 33x (our new multiple allowing for 3 pts above Apple's forward estimated organic earnings growth rate of 30x, adjusting for the expected deferred revenue/EPS) our updated FTM EPS estimate - ex-interest income and options expense, plus ~$14.20 in cash per share. Contact Us for Full Report - PDF

04.26.07 

aapl: BLOWOUT QUARTER ON LOWER COMPONENT PRICES; CONSERVATIVE JUNE GUIDANCE WITH IPHONE TWO MONTHS AWAY; REITERATE BUY RATING AND TOP LARGE CAP PICK
Apple reported March quarter results of $5.26B and $0.87, versus our estimates of $5.02B and $0.63. The upside in the quarter was driven by a very large increase in gross margins due to falling component prices, resulting in an adjusted 35.5% margin versus our estimated 31.0% and guidance of 29.5%. Falling component prices in the quarter were expected to yield much higher margins, but the beat is likely above most bullish expectations. We believe that new product offerings expected this year and beyond will continue to drive growth for Apple and we are reiterating our Buy rating and increasing our price target to $115 from $110, based upon 30x (Apple's forward estimated organic earnings growth rate) our updated FTM EPS estimate - ex interest income and options expense, plus ~$14.20 in cash per share. Contact Us for Full Report - PDF

03.09.07 

aapl: AN APPLE IN INVESTORS' EYES; INITIATING WITH A BUY RATING AND $110 PRICE TARGET
We are initiating coverage of PC company and consumer electronic powerhouse, Apple, Inc., with a Buy rating and a $110 price target. Apple has a very impressive desktop and notebook offering that continues to grow faster than the industry and command higher ASPs, an iPod franchise that dominates the category and represented almost half of total Company revenues in the strongest quarter in its history, Dec. '06, a new OS due out shortly that is expected to help facilitate operating both Mac OS X and Windows OS through virtualization software, an upcoming iPhone offering in the ~1B unit total cellphone market, and numerous other products and initiatives in-place and on-going which should continue the successful metamorphosis of Apple Computer into Apple, Inc, a full-blown consumer electronics powerhouse that successfully combines hardware and media offerings. We believe that new product offerings expected this year will continue to drive growth for Apple and are establishing a price target of $110, which is based upon 30x (Apple's forward estimated organic earnings growth rate) our C2007 EPS estimate-ex interest income and options expense, plus ~$13.50 in cash per share. Contact Us for Full Report - PDF