Apple Recovery Is on Its Way

NEW YORK ( TheStreet) -- Much has been made about Apple's ( AAPL) share price decline over the past few months, as the stock fell from $700 in September 2012 to below $400 just a few weeks ago. Is the stock, and the company itself, on its way to recovery? It is, if you believe one Wall Street pundit.

Topeka Capital Markets analyst Brian White said he believes that Apple has a three-pronged approach towards a sustainable share price recovery: returning cash to shareholders; a profit cycle trough and move higher; and new areas of growth. White rates Apple "buy" with a $888 price target.

Apple completed the first part of the recovery process when it announced earnings, raised its buyback program by $50 billion and lifted its dividend 15% per annum. In total, Apple will return $100 billion to shareholders over the next three years, way more than the $45 billion it initially announced in March 2012.

Investors had been clamoring for Apple to return more cash to shareholders. Those investors include Greenlight Capital's David Einhorn, who spoke at the Ira Sohn Conference last week. CEO Tim Cook and his team were under pressure to deliver more to shareholders, and it's worked, with the stock up 13.6% since Apple's second-quarter earnings.

The next phase of the recovery is a little more tricky, though it does appear as if it's playing out. Apple guided third-quarter revenue between $33.5 billion and $35.5 billion, with gross margins between 36% and 37%. That was well below what analysts were thinking, but recent data shows that Apple's earnings trough might be coming to an end.

"Final April sales for our Apple Monitor rose by less than 1% MoM and better than the average decline of 1% over the past eight years," White penned in a note. "This outperformance follows two consecutive months of weaker than average seasonality." He also noted that Hon Hai Precision saw a 12% month-over-month increase in sales, much better than the 3% average decrease over the past three years.

That suggests that Apple orders aren't as weak as initially thought, and perhaps Apple may have set the bar so low for the fiscal third quarter that it trounces them, and sets itself up for a return to growth in the fourth quarter and beyond.

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