Analysts cut Apple price targets on company’s weak margin outlook

“At least three brokerages cut their price targets on Apple Inc by up to $50 a share after the iPhone maker surprised analysts by forecasting lower gross margins for the current quarter,” Supantha Mukherjee reports for Reuters. “For the December quarter, Apple forecast revenue of $52 billion, below estimates of $55 billion, according to Thomson Reuters I/B/E/S. It expects margins of 36 percent, far lower than analysts’ expectations of 43 percent.”

“Apple’s forecast decline in gross margin, even assuming it was deliberately aiming low, still pointed to an unusual decline, Evercore Partners analysts Rob Cihra and Edison Yu said in a research note. Evercore cut its price target on the stock to $775 from $800,” Mukherjee reports. “Nomura Equity Research said it expected production costs to rise in the current quarter, after Apple redesigned so many of its products at once. ‘The iPhone 5, iPod Touch, iPod nano, iPad mini and iMac all feature new form factors and our checks with the supply chain indicate that many of these are very complex to manufacture and are likely resulting in reduced production efficiencies,’ Nomura analysts said in a note as they lowered their price target to $660 from $710.”

Mukherjee reports, “Apple said it expects 80 percent of revenue in the current quarter to come from new products but did not increase the product prices to offset higher costs and maintain its margins. Analysts, however, expect gross margins to recover by June next year as rising volumes trim manufacturing and component costs. When the iPhone 4 was launched, Apple suffered a 480 basis point decline in corporate gross margins but it recovered entirely within two quarters, Raymond James analyst Tavis McCourt said. He cut his price target on the stock by $30 to $700.”

Read more in the full article here.

MacDailyNews Take: New products cost more to make initially and Apple expects 80% of revenue to come from brand new products, hence the company’s margin guidance. Nothing could be less mysterious. There’s no reason to cut 12-month price targets on Apple Inc.

Related article:
Apple beats Street on revenue, misses on EPS – October 25, 2012

34 Comments

          1. Look at the bright side. Good for Apple, now it can acquire back shares at a cheaper price. What Wall Street’s analysts think they can harm Apple will come back to bite them.

    1. It’s probably somewhat self-fulfilling (or could be argued so, anyways), but the job of these analysts is to try to guess where the stock price will be – not what the company is actually worth or how well it is performing as a company. And the stock price is a function of what people are willing to pay for it – not a measure of how well the company is performing as a company.

  1. To her credit Melissa Lee, on CNBC this morning, noted that Apple sets the company’s forthcoming guidance (and typically sandbags) but the analysts set their own targets. When Apple doesn’t meet the analyst’s targets the analysts throw a hissy fit. Therein lies the fundamental problem with what ensues in AAPL trades.

    Conversely, Amazon reveals nothing, has a higher P/E and gets away with whatever the company wants with the analysts who reward the comany.

    It’s just plain goofy.

  2. For as much as they are right, analysts could not even make it predicting the weather. But removing the haze from their heads with reduced guidance make work out in the end, if they begin to apply Amazon-like expectations to Apple.

  3. Glad Apple is thinking of its users and didn’t raise prices.

    They have done this for the last 17 years. The new versions come in at the same price as the old, with new features, bigger, better, badder hardware. Margins drop for a quarter, until production ramps up, then margins come back up. Nothing to see here.

    The real mysteries are; 1) why the ‘street’ and most of the analcysts punish Apple for everything. iPhone5 didn’t bring up the entire stock market? Punish Apple. Apple didn’t revamp their entire product line every 6 months? Punish Apple. Apple had the nerve to update the entire product line? Punish Apple. 2) Why people pay more attention to so called experts with NO connection to Apple (about products, financial outlook and etc) than to Apple itself? 3) why do Apple outsiders like the expert analcusts who know nothing about Apple, get a free pass when they are wrong about Apple 95% of the time?

  4. What’s wrong with American analysts? A company that is earning actual profits 22% above the previous year’s quarter is being punished, while a company that is making losses is being celebrated and rewarded.

    Analysts like to pluck a figure out of thin air and expect it to be adhered to no matter how airy-fairy their forecasts are. People who are actually running a profitable company with realistic target are being spurned in favor of people who are fundamentally unrealistic and utopian.

    These analysts come from the Wall Street’s school of thought where fantasy is the new reality. Wall Street’s alchemy of turning toxic debt and profitless market share into gold is being celebrated up to the top echelon of policymaking in the political, economic and social fields, and this is one of the reasons that had torpedoed America into a third-rate country.

    Wall Street does not like Apple for challenging its orthodoxy and turning it a joke. Apple is no use to Wall Street because it does not adopt debt as an instrument of growth and be in perpetual clutches of Wall Street’s bankers. Policymakers do not like Apple’s model because they cannot manipulate economic policies if based on fundamentals. They have to invent new models and abandoned well-tested models as a means of maintaining manipulation and continued power.

    But time have proven Wall Street to be wrong big time. The world economic crisis is a testament and a legacy to Wall Street’s stupidity. Stupidity is not confined to morons but when the crème de la crème of society succumb to stupidity it’s fatal for everyone. Those whom the gods wish to destroy they first make mad [stupid].

    1. American anal yst educated by American schools, they’re suppose
      to be smart decent intelligent bunch, but instead they act like casino
      dealers groomed by Las Vegas and Atlantic casino association or
      US casino university.what a sad state we are in now, may all those anal yst loose their jobs ASAP

  5. Doesn’t really matter what these analysts say. The fact that there is so much negative talk across the board about Apple and its products means very gloomy outlook for AAPL. We may have seen the peak. And, Tim Cook is a disaster. When he comes onto the stage, you just can’t help but wish for more.

    The powerful negative images driven by complaints of things that don’t really matter with Apple’s incredible line up of devices are killing the company. Cook is NOT up to the challenge. When he apologizes for the stupid Maps instead of saying, as Steve did about the phone with the faulty antenna, that ours is as good and better as the others he’s losing. When he says they don’t worry about cannibalization of their own products, he looks clueless.

    These are bad days and getting worse as each one comes along.

    1. So you should run out right now and buy a bunch of $300 puts, and put your money where your big mouth is. Of course, that would take some balls and some cash, both of which seem to be in short supply in your case.

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