UPDATE 5: Apple rocked by cuts, trips circuit breaker
By Dan Gallagher and William L. Watts, MarketWatch - 12:14p ET January 24, 2013
SAN FRANCISCO (MarketWatch) -- Shares of Apple Inc. slid more than 10% on Thursday, tripping a
Nasdaq circuit breaker as analysts rushed to cut their price targets for the once-favored company, following
a lackluster earnings report.
The steep slide in Apple shares triggered a "circuit breaker" on the Nasdaq that is aimed at limiting short
sales of a stock.
Apple (AAPL) was last trading at $461.56 -- down more than $52 from the previous close and about 35%
below its all-time high just above $700 on the day of the iPhone 5 launch in September. Thursday was the
largest dollar drop in the stock's history, and the largest percent drop since May of 2010. The stock is now
at its lowest level since February of last year.
While the results late Wednesday came roughly in line with Wall Street's estimates, the forecast
disappointed analysts who have already been worried about slowing demand for the company's flagship
iPhone. Several cut back their price targets on Apple's shares on Thursday in response to the report.
"Momentum is a powerful thing, both on the positive and negative side, and it is tough to try to call a bottom
in Apple's negative stock momentum," wrote Toni Sacconaghi of Bernstein Research, who trimmed his
target to $725 from $750.
Several analysts made more drastic cuts, though most retain their buy ratings on the stock. At least 30
analysts cut their targets on Apple following the report, with the average reduction totaling about 15%,
according to data from Thomson Reuters.
Gene Munster of Piper Jaffray cut his target to $767 from $875, citing Apple's gross-margin forecast for
the March quarter that remained below the 40% level that most investors were hoping to see.
"Given new guidance, it appears highly likely that gross margins will be down sequentially in March
despite coming off of a launch quarter," Munster wrote. "The implication of a down sequential gross margin
from a launch quarter fuels fears that gross margins will be structurally different than they have in the past."
Before the report, the highest price target on Apple was $1,111, set by Brian White of Topeka Capital
Markets. He cut his target to $888 on Thursday, citing the decline in Apple's share price, but adding that he
believes "there is quite a bit of bad news priced into the stock at current levels, while estimate resets lower
the bar for the future."
For the December quarter, Apple reported flat earnings growth on an 18% gain in revenue. IPhone
shipments of 47.8 million units came in at the low end of analysts' forecasts -- though still a quarterly
record for the company following the launch of the iPhone 5 in late September.
The company's forecast was also a concern, as Apple projected a revenue range of $41 billion to $43.
Analysts had been looking for revenue of $45.6 billion. The company predicted a gross margin range of
37.5%-38.5% for the March quarter.
Bill Choi of Janney Capital noted that "results and conservative guidance will fuel additional competitive
concerns around iPhone," leading him to trim his estimates and cut his price target to $610 from $745.
"While Apple shares may be under pressure over the intermediate term, we believe long-term fundamentals
remain intact, and we continue to believe Apple will leverage its ecosystem and innovate on new products,"
he said.
Steve Milunovich of UBS cut his price target to $600 a share from a previous $650, while maintaining his
buy rating. He called the stock "oversold," and added that the stock "needs a catalyst, which may come with
new products in the June quarter."
Citigroup, which downgraded Apple to a neutral rating earlier this month, cut its price target to $500 from
$575.
"We suspect Apple's results will do little to assuage investors' concerns about share and profitability,"
wrote Glen Yeung of Citi in a note to clients. While he predicted that Apple would likely launch new
products this year, including a lower-end iPhone, he said risks would likely remain in focus.
"With so many uncertainties, now supported by falling consensus estimates, we believe investors will
continue to focus on risks in the Apple story, limiting share appreciation," he wrote.
Sacconaghi of Bernstein kept his outperform rating on the shares, noting that "sentiment is low, valuation
is compelling, and several potential catalysts exist," adding that "at some point, the cash has to matter,"
adding that Apple has about $145 per share in cash on its balance sheet.
-Dan Gallagher; 415-439-6400; AskNewswires@dowjones.com
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