Analysts continue to slash their target prices on Apple Inc., whose share price has been moving in the opposite direction to its technology peers and the broader market.
On Wednesday afternoon, Apple traded below $428 (U.S.), down 0.8 per cent and not far from the 52-week low it touched on Monday, even as the S&P 500 inches toward a record high.
The declines feed into a 40 per cent slump that began last September, when the shares touched a record high of $705. Though analysts took some time to adjust their views on the stock, they are making up for lost time now.
Berenberg Bank cut its recommendation to "sell" from "buy" – an unheard-of downgrade during Apple's rise – and slashed its 12-month target price to just $360 from $800. That's a 55 per cent reappraisal, which is startling. Meanwhile, Citigroup trimmed its target price on Apple to $480 from $500.
Now, the average target has fallen to $614, according to Bloomberg, from a peak of $780 – a 21 per cent decrease, to the lowest level in a year.
Analysts seem primarily concerned with the performance of Apple's existing products. As the Citigroup analyst says (via Tech Trader Daily ): "In conducting our regular field work with the hardware supply chain, we again find evidence of reduced demand to Apple's suppliers for iPhone5 related components."
And with respect to the iPad, he said his fieldwork points to a reduction in demand for the 10-inch tablet, with the newly introduced iPad mini "undoubtedly cannibalizing 10-inch iPad sales."
As for Berenberg, the analyst believes Apple is in a tough spot. If it sticks to the high-end of the smartphone market, competition will pick away at it and revenue growth will be constrained. And if it goes lower-end with a cheaper iPhone, margins will suffer.
What's interesting about Apple's predicament, though, is that the market seems to be paying no attention to what has made the company a star over the past decade: It has produced three wildly innovative products – the iPod, iPhone and iPad – that have revolutionized the consumer gadget space. Is Apple now tapped out?
The market thinks so: The shares trade below 10-times trailing earnings. As Bloomberg News pointed out, the valuation spread with rival Google Inc. – whose shares trade at about 25-times earnings – is the widest it has been since 2005.
Bloomberg quotes Sameet Sinha, an analyst at B Riley & Co.: "There's only one company benefiting from all the growth areas of the Internet – be it video, mobile, local, social, display advertising. Apple has just done well in devices, nothing else."
Talk about a monumental sentiment shift!
Yet, anyone who gushed enthusiasm about Apple during its run-up to record highs last year couldn't have been focused solely on the company's current lineup of gadgets. Apple's strength was in reinvention – moving from computers, to music, to smartphones, to tablets.
Most optimism about the company flowed from a belief that it could do more – with particular emphasis on the television market. There is no news to suggest that Apple's product line has gone dry. But you won't find any optimism in the share price.
David Berman