This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Apple Has 20% Upside From Here

NEW YORK ( TheStreet) -- Apple's (AAPL - Get Report) fourth-quarter results were mixed, as cost pressures from a slew of new products impacted earnings. Investors could see as much as 20% upside next year, though, as costs come down, and Apple's margins ramp up.

Apple CFO Peter Oppenheimer noted that fiscal first-quarter margins, Apple's most important given that they coincide with the holiday season, will be around 36%, 400 basis points lower than the company's historical average.

Tim Cook Launches 'Surface' Attack: Apple Live Blog Recap

For the three months ended Sept. 30, Apple reported fiscal fourth-quarter earnings of $8.2 billion, or $8.67 per share, on revenue of $36 billion, up from a year-ago equivalent profit of $6.6 billion, or $7.05 a share, on revenue of $28.3 billion. The average estimate of analysts polled by Thomson Reuters was for earnings of $8.75 a share on revenue of $35.8 billion in the fourth quarter.

Apple launched several new products in the past six weeks, including the iPhone 5, iPad mini, iPod Touch, fourth-generation iPad, iMac, 13-inch MacBook Pro, and Mac Mini. "We believe over 80% of revenue in the December quarter will come from products we've introduced in just the last 6 weeks," Oppenheimer noted.

With such a massive product refresh in such a short period of time, and the iPad mini having much lower margins than Apple is used to, overall margins will come down. Deutsche Bank analyst Chris Whitmore believes shares should be bought on a pullback. "We trim est's on margins associated with new product ramps (GMs guide to 36%) but with the biggest product refresh in history into the Dec Q, we recommend investors Buy AAPL on any pullback," Whitmore wrote in his note. He rates Apple "buy" with a $800 price target.

Apple essentially refreshed its entire product lineup in the past two months, and there are costs associated with that. CEO Tim Cook made his bones as an operations genius, managing the supply chain, help Apple squeeze every last dollar of profit.

UBS analyst Steven Milunovich believes there's room for upside throughout 2013, as costs come down, and Apple is able to manage the supply chain better. He rates Apple "buy" with a $780 price target.

Apple has big expectations for its product refreshes, especially the iPad mini, as CEO Cook noted on Thursday night's conference call. "One of the things we try to do is create a product people will love for months and years after purchasing it," he said. "That's what the iPad mini has been designed to be."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $132.15 1.90%
MSFT $47.58 9.80%
FB $81.59 -1.00%
GOOG $565.06 0.00%
TSLA $220.65 0.94%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs