Piper Jaffray trims Apple price target to $655 from $688, says margin fears overblown

“Piper Jaffray’s Gene Munster this morning reiterated an Overweight rating [on Apple (AAPL) shares], and cut his price target to $655 from $688, writing that investors are worrying too much about Apple’s gross margin, and that the shares can lift once new products come out, starting in the second half of this year,” Tiernan Ray reports for Barron’s.

“Munster thinks investors are imagining a ‘nuclear meltdown’ in Apple’s gross margin, bringing it as low as 32% by 2015, “including 50% cannibalization of the regular iPhone from the cheaper iPhone, a 15% margin on the cheaper phone, and a 10% margin on the TV,” alluding to speculation Apple will introduce a television set,” Ray reports. “Munster performs his own calculations and estimates margin would fall only to 34% by 2015. That includes a 50% cannibalization of iPhone sales by the cheaper iPhone, at the lower 15% margin, and Apple taking 7% share of the “sub-$400″ smartphone market. He leaves out the impact of a television set, which he thinks could arrive later this year and, assuming a $1,500 retail price, would have a “’modest’ impact on profit margin…”

Read more in the full article here.

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11 Comments

    1. I’ve been trading AAPL options since 2004. At one point I kept a spreadsheet on analysts’ price targets, looking for rhyme or reason.

      There is none.

      Over a 2 year period AAPL behaved without regard to analyst price targets. That’s when I stopped calling the ratio of Price to Earnings PE, and started calling it Investor Sentiment Multiplier (ISM). Sentiment is what drives the price of an equity, ISM (PE) is the result.

      And we all know that there is little rhyme or Reason to Investor Sentiment. Trying to estimate Sentiment is like herding cats.

  1. Gene… the perennial Apple cheerleader… Plus, he actually knows what he’s talking about and most often doesn’t pick numbers out of thin air. He’s the one who sends people to Apple stores to count devices purchased, to talk to sales people, he compiles actual numbers and bases all the projections on some real data.

  2. Horace was discussing this problem analysts have with companies like Apple. They look at Apple’s current business and extrapolate it out over some period of time and make a prediction. They may feel that Apple is working cool new products but how can they model that when they there is no information about when the product will arrive and what it will be like. It is similar to driving by looking in the rear view mirror.

    1. “…similar to driving by looking in the rear view mirror.”

      That’s the correct way to drive when you’re in reverse, right Microsoft/Dell/Blackberry/Nokia?

  3. Gene seems to be a straight arrow. When things are good he tells you they are good. When things are bad he tells you they are bad. He’s not a fanboy. He’s not a rumor monger. He might be right or wrong but it seems that he does give you his honest point of view. I think he and I are the only two people who think Apple will make the iTV at some point. We’ll see.

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