Two very different outlooks come this week via two groups of analysts. Susquehanna is calling Apple its top 2014 investment idea while Societe Generale is downgrading Apple from a "buy" to a "hold".
In an update note to investors Tuesday morning, Susquehanna's Chris Caso and Liz Pate say the "S" in iPhone 5S stands for "success" and are giving Apple a price target of $650 per share. They believe that both the China Mobile deal and the expected iPhone 6 will be big deals. The two write:
"We upgraded AAPL in September as the success of the iPhone 5s became apparent, and raised our estimates in mid-December after our production checks indicated a more favorable production shift in favor of iPhone 5s (the opposite of what happened last year). While expectations have now risen since September, we still feel comfortable with estimates into earnings, with our iPhone production estimates marginally ahead of Street consensus on the back of strong iPhone 5s demand… We think AAPL has become one of the most compelling ideas in tech. We reiterate our Positive rating, and are moving AAPL to our top idea list for 2014."
Not everyone thinks Apple is that good an idea. Over in London, Societe Generale's Andy Perkins and Peter Knox say there is worry over iPhone 5S sales and their 12-month price target is $575 per share. They write:
"Our recent market checks indicate that the worldwide handset market remained strong in Q413 (fourth quarter of 2013), with data pointing to worldwide handset volumes up 10% yoy (year-over-year). Usually we would expect Apple to outperform the market in Q4 as the company has just issued new product s. However, our research suggests that volumes may come in below expectations. We are now looking for 52 (million) units for the final quarter of 2013. We also believe that the 5s model is selling substantially better than the 5c handset with Apple selling roughly four 5s units for every 5c unit sold."
Which one of these viewpoints is correct?
Jason Rotman, managing partner at Lido Isle Advisors, believes Susquehanna's very positive outlook is unwarranted.
"If you look at Apple's net income – earnings – it's all going down," says Rotman. "As an investor, you'd like to see things that are rising and try to buy low and sell high. Fundamentally, Apple's priced a bit rich right now."
Apple's earnings per share in fiscal year 2013 were $39.75, nearly 10% less than its fiscal year 2012 EPS of $44.16. However, both Susquehanna and Societe Generale believe Apple's fiscal 2014 EPS will exceed even the company's 2012 numbers; Susquehanna thinks it will come in around $46.51 while Societe Generale is expecting $44.50. The average 2014 estimate of 53 analysts is $43.75, according to data compiles by Thompson Reuters.
Rotman also believes the recent China Mobile partnership is not as impressive some hope.
"I'm not looking for a big earnings surprise," says Rotman. "I don't think Apple's the top idea for 2014. I don't think one of the top 10."
Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, also thinks that Apple may not be one of the best stocks of 2014 but it he still sees it as a buy based on its technicals.
"It doesn't have to be your best idea to make you money in 2014," says Ross. "This isn't the stock of 2012, but it ticks a lot of boxes from a purely technical standpoint."
Ross sees Apple shares as having come off a double bottom over the past seven months on an uptrend line. Over the past couple of months, though, it has traded a bit down in a countertrend channel known in technical analysis as a 'flag' that is supported by the 100-day moving average currently at about $519 per share. "When this pattern runs its course," says Ross, "we will continue to the upside."
"Apple's a stock I really like," says Ross, who agrees with Susquehanna's $650 price target. "Maybe I don't love it this year but you're going to make money here. This is a solid stock with a very nice looking chart. I'd still be a buyer of Apple."
To see more Apple analysis by Rotman on the fundamentals and Ross on the technicals, watch the video above.
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