Analyst: Lack of clarity at Apple warrants ‘sell’ rating

“For all of its terrific marketing, superb products and highflying stock, there’s another side to the revival of Apple Computer that gets less airplay: Its lack of a certain type of disclosure.,” Herb Greenberg reports for MarketWatch. “With the exception of analyst Robert Renck, nobody seems to care. Renck, of the private research firm R. L. Renck & Co., may be the only analyst to rate Apple a ‘sell.’ Among the reasons: the sparse way in which it breaks out operating results of its segments. Renck, who prides himself on knowing his way around the dark alleys of financial statements, has a knack for questioning the status quo of Wall Street darlings. His earlier targets include McDonald’s, before investors realized how stale it had become, and CUC International, before it was acquired by – and became a major headache for – Cendant.”

Greenberg reports, “While not predicting a similar fate for Apple, Renck believes the company’s skimpy segment disclosure makes it a ‘have-faith, trust me’ stock. As a result, he has warned his clients, Wall Street’s bullish forecasts aren’t without risk for this simple reason: Analysts can’t get a true and complete picture of how Apple makes its money. ‘I don’t think Apple is doing anything wrong other than their penchant for secrecy,’ he says.”

“Renck goes so far as to say he believes Apple should do a separate breakout for computers, iPods, music-related products, peripherals and software and service. ‘Their business has changed and they should be doing it differently,’ he says. ‘Transparency is what everyone wants, and they don’t want to be transparent,'” Greenberg reports.

Greenberg reports, “On a recent earnings conference call, several analysts specifically asked about the iPod’s gross margin. Finance Chief Peter Oppenheimer responded to one, saying, ‘… Our competitors would just love to know what our specific gross margins are … and we just don’t want to help them.’ While that is understandable, Renck doesn’t believe it is necessarily right. ‘Without clarity,’ he argues, ‘analysts can’t forecast with any degree, other than to rely on what management says.'”

Full article here.

[Thanks to MacDailyNews Reader “Jim” for the heads up.]

MacDailyNews Take: So, Apple should risk hurting themselves by disclosing information that their competitors could use in order to appease the Wall Street charlatans, er… analysts? Because Apple has a responsibility to shareholders, if it’s legal, the company should do what they can to be as competitive as possible. What’s really crazier, Apple not breaking out separate products in product categories or rating AAPL stock a “sell” for no sound financial reason?

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  1. The last time I remember an analyst rating AAPL as a sell was Merrill Lynch, when APPL was trading at around $13. Since then, the stock has split, making their advice twice as wrong, even with APPL trading at it’s current value.

    Until there is an analyst with some sort of credible track record of predicting Apple’s future, they will continue to be regarded as a joke

  2. My 2 cents

    As a shareholder, i do love apple. However, i wish they would spend some of that fat bank account as a dividend for shareholders. Reward the shareholders for being loyal and holding the stock

  3. Apple’s reason for being is to enrich their owners (investors). Nothing else.

    This is exactly what’s wrong with capitalism in this country. It all started in the ’80s, with corporate raiders, who wrung out every cent from companies then discarded them, leaving them with no insulation against the inevitable fluctuations of life.

    If a corporation sees itself as existing solely to enrich its shareholders, it is doomed to failure, not to mention being a horrible place to work. Only the rich-get-richer republican types could like the present situation.

  4. He does have a valid point. Apple does not release information like other tech companies. They keep a very tight cap on product roadmaps and such. There is also some valid criticism that Apple is making all of their big profits from IPods and iTunes and the computer line is mediocre (for cashflow). The ydon’t ahve to release secrets they just have to inform their customer and stockholders.

    Apple should be more transparent.

  5. “Apple couldn’t possibly be sitting on the pile of CASH that they are if iPods were their only profitable product.”

    Apple has been sitting on a pile of cash for the last 10+ years.
    A big chunk of their profit is made each quarter off the investment of this cash.

    Sorry if I called you a genius, I was in a bad mood and thinking of Bill Gates.

  6. Prior to the macmini Apple used to break out sales on just about each computer line. Then macmini came out with lots of hoopla, and flopped (remember it was supposed to bring zillions of windows users to Macland) and Apple decided better to bury the news and stopped releasing sales figures on each computer.

    To bill – just because apple has the cash pile – I believe it is in the area of $5-$6 billion Apple has had it for a very, very long time. If iPod were so successful the hoard of cash should be even bigger.
    My 2 cents – Apple iPod sales are not increasing like they used to – maybe leveled off; most computer sales are coming from Mac OS9 people make replacements. Apple stock will drift slowly downward for the remainder of the year.

  7. “If a corporation sees itself as existing solely to enrich its shareholders, it is doomed to failure, not to mention being a horrible place to work. Only the rich-get-richer republican types could like the present situation.”

    Mr Keynes, this isn’t a values statement, it’s a partial definition of a publically traded corporation and it didn’t start in the 80s. (BTW -I write this as a bleeding-heart liberal.) The leadership of any corporation makes myriad decisions on how to enrich the owners. It may beat the employees with a stick to stop them complaining about below-market wages or it may do anything it can to keep the best and the brightest by creating a beautiful work-place and pay exhorbitant wages. Sometimes the best way to enrich investors is to *increase* expenses.

    Another BTW – Bill: Apple could be sitting on a pile of cash if the iPod was the only profitable product. Cash is from what you made yesterday. Stocks are priced largely on what you’ll make tomorrow.

  8. Apple’s sole purpose has been precisely NOT to enrich shareholders. It it a good example of the company that sets out to do things well with products that customers will want, and in doing that they know the shareholders will become enriched in any event. Dell is a good example of the company that exists only to enrich shareholders.

    Apple is following a successful strategy, that much is clear. If by being precise about individual products were to help unravel its strategy, who would that help? Microsoft, Creative, Dell, HP… The analysts just want more details to play with on one of the most interesting stocks of all time. The feel left out not knowing more than you and I. So it seems they must be more canny to earn their crust viz a viz Apple stock.

  9. Interesting pov’s but I tend to disagree. First, if the iPod was the only profitable product in the Apple line, that pile of cash would be steadily shrinking. The most expensive part of any product life cycle is the development phase. Couple that with sour sales and you have a steady stream of blood. Assuming the iPod is the only profitable product and assuming the pile of cash isn’t getting any larger (and I don’t know if that’s true or not) then the rate of loss is equal to whatever that pile of cash is earning in outside investments plus the profits of the iPod. Granted the Mini isn’t burning up the charts but I think there were unreasonable expectation for the Mini to sell like the iPods. Frankly, there is no single model of computer (PC or Mac) that is flying off the shelves. The Mini was expected to be the gateway Mac but now it’s moving in the direction of a living room appliance. Really we don’t know what the initial release of the computer was supposed to do – it could have simply been a test of a product to see if there was ANY interest in it at all.

    And I’m not sure I agree with Remember’s statement that “Stocks are priced largely on what you’ll make tomorrow” when all we have to base these judgments on are historical information. Financial Statements are historical documents. The balance sheet is a snap shot of a company at a certain point in time in the past. The Income Statement is statement of results from a period of time in the past. We can estimate what a market place might be like in the future but only by using information from the past. Stock price reflects the health of a company as it’s related to the market it’s in right now. Stock price may fluctuate as the companies ability to perform is fore casted but the foundation for the price is the innate value of the company and the ability of that company to stay a going concern. Sure that can be married to “what you’ll make tomorrow” but that statement isn’t detailed enough or perhaps picked apart enough to offer any real meaning.

    I’ll be the first to admit that I’m not an investing genius. The past few years the bulk of my investment earnings have been in real estate like a lot of other people. I have a portfolio manager who makes the hard decisions for me because he’s further steeped in the stock market than I. But I do know how to read financial statements, I do it every day. And getting back to the initial point of the article, I’m not sure I could justify a sell rating on Apple stock just because I can’t peel enough layers away at the sales figures. But again, like I said in an earlier post, I haven’t looked at Apple’s financials. YMMV.

  10. AAPL is not breaking out its earnings because iPod sales are subsidizing computer sales – much like HP’s printer business was what kept that company’s computer business alive until recently. I don’t think AAPL makes very much profit on its computer sales with the prices they’re quoting. It’s not a bad strategy, but iPod sales will level off eventually, and the computer business had better be ready to take up the slack or the stock price will be in for a big dive. There’s just too much anticipated profit growth built into it right now.

  11. When it was revealed a few years ago that 80% of HP profits came from selling replacement ink cartridges, HP stocked dived big time.

    If something similar was discovered about Apple – such as a loss or break even on each computer; that iPod does it all for Apple in the profit dept, this would cause a lot of heartburn on Wall Street. And something like this is what everyone fears about Apple.
    How profitable is the software making business for Apple? That dept. definitely can´t be profitable. (Just like IE is probably not profitable for Microsoft – they have to give it away.)
    And Apple stores – without an accounting trick of shifting ad expenditures to the stores those things probably don´t make money. Check out Apples finacial reports, read deep and you will be surprised at the precarious profit situation Apple is in.

  12. Bill: What I said “what you’ll make tomorrow” I was referring to the Price to Earnings ratio. Current stock price is some multiple of current earnings. At today’s close, AAPL had a P/E of 29.7 meaning that investors are willing to spend 30 times today’s earnings to own their piece of paradise. The multiple is a reflection of investors’ expectation of future performance. AEBE, if earnings went up $1 stock price would rise $30.

    The estimate (i.e. guess) of tomorrow’s growth is reflected in the multiple.

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