Cupertino (CA) – Apple, which often appears to be immune to economy downturns, was hit by a financial shockwave caused by two noteworthy analyst downgrades. RBC Captial Markets and Morgan Stanley adjusted their Apple stock recommendations, citing a troubled economy that may negatively impact the purchases of gadgets as well as a PC market that is shifting more and more to sub-$1000 systems. Apple’s stock lost more than 17% today and is down about 48% from its all-time high reached in January of this year.
"Apple is not recession proof," wrote RBC analyst Mike Abramsky in a research note today. And it is the current economic climate that worries the Abramsky and Apple’s potential future sales and prompted him as well as colleagues from Morgan Stanley to downgrade the Apple stock from buy to neutral. Investors reacted almost immediately, sending the stock down $22.30 to $105.94, which was down more than 17% from the Friday close of $128.24. Apple’s stock recovered a bit in mid-day trading and hovered around $111 and 6-month lows.
Both investment banks cut their growth guidance for the Mac maker from the general 15.5% estimate: Morgan Stanley lowered Apple's fiscal year 2009 EPS growth to just 9%, decreased the company's share price target from $178 to $115. RBC cut its price target to $140, down from $200. Morgan Stanley now expects Apple to report an 8% decline in EPS for the December quarter, a sharp drop compared to the 29% growth reported for the June quarter. "We believe multiples for high growth stocks will continue to compress in the current environment and, in the context of our 6% fiscal 2009 per-share earnings growth assumption, we don’t believe Apple is immune to this trend," said Morgan Stanley analyst Katy Huberty, citing slowing PC shipments as the primary concern.
Huberty believes that shrinking PC shipments will reduce overall growth opportunities to the sub-$1000 market segment – a market in which Apple does not compete.
RBC Capital Markets' analyst Mike Abramsky justifies the downgrade on a broader hit on consumer spending, pointing out the most recent Changewave study that reveals a drop in planned Mac purchases compared to the same study in August. According to the study, 29% and 26% of respondents plan Mac laptop and desktop purchase, respectively, in the next 90 days, down from 34% and 30% in the August study. Abramsky believes that a 40% of consumers will spend less on consumer electronics and called it "the weakest outlook ever seen."
As a consequence, Abramsky changed his September quarter Mac unit sales expectations to 2.9 million, down from a previous 3 million estimate. He expects Apple to move 14 million iPhone units in 2008 and 24 million in 2009. But Apple's iPhone business may be in for a rough ride, as RIM was down 47% in the past month and Nokia lost market share competitors who offer cheaper phones, signaling a slowdown in global smartphone market.
Abramsky thinks that now is the time for Apple to part with some of its $21 billion cash reserves to repurchase 5% of its outstanding shares and to “return to shareholders some of its expected strong fiscal 2009/2010 cash flow."
Apple's stock, however was not the only one hit today. In a generally dramatic session, Nvidia was down almost 8%, Google more than 7%, AMD almost 10%, Yahoo 6% and Intel about 4%.
"Apple is not recession proof," wrote RBC analyst Mike Abramsky in a research note today. And it is the current economic climate that worries the Abramsky and Apple’s potential future sales and prompted him as well as colleagues from Morgan Stanley to downgrade the Apple stock from buy to neutral. Investors reacted almost immediately, sending the stock down $22.30 to $105.94, which was down more than 17% from the Friday close of $128.24. Apple’s stock recovered a bit in mid-day trading and hovered around $111 and 6-month lows.
Both investment banks cut their growth guidance for the Mac maker from the general 15.5% estimate: Morgan Stanley lowered Apple's fiscal year 2009 EPS growth to just 9%, decreased the company's share price target from $178 to $115. RBC cut its price target to $140, down from $200. Morgan Stanley now expects Apple to report an 8% decline in EPS for the December quarter, a sharp drop compared to the 29% growth reported for the June quarter. "We believe multiples for high growth stocks will continue to compress in the current environment and, in the context of our 6% fiscal 2009 per-share earnings growth assumption, we don’t believe Apple is immune to this trend," said Morgan Stanley analyst Katy Huberty, citing slowing PC shipments as the primary concern.
Huberty believes that shrinking PC shipments will reduce overall growth opportunities to the sub-$1000 market segment – a market in which Apple does not compete.
RBC Capital Markets' analyst Mike Abramsky justifies the downgrade on a broader hit on consumer spending, pointing out the most recent Changewave study that reveals a drop in planned Mac purchases compared to the same study in August. According to the study, 29% and 26% of respondents plan Mac laptop and desktop purchase, respectively, in the next 90 days, down from 34% and 30% in the August study. Abramsky believes that a 40% of consumers will spend less on consumer electronics and called it "the weakest outlook ever seen."
As a consequence, Abramsky changed his September quarter Mac unit sales expectations to 2.9 million, down from a previous 3 million estimate. He expects Apple to move 14 million iPhone units in 2008 and 24 million in 2009. But Apple's iPhone business may be in for a rough ride, as RIM was down 47% in the past month and Nokia lost market share competitors who offer cheaper phones, signaling a slowdown in global smartphone market.
Abramsky thinks that now is the time for Apple to part with some of its $21 billion cash reserves to repurchase 5% of its outstanding shares and to “return to shareholders some of its expected strong fiscal 2009/2010 cash flow."
Apple's stock, however was not the only one hit today. In a generally dramatic session, Nvidia was down almost 8%, Google more than 7%, AMD almost 10%, Yahoo 6% and Intel about 4%.