Apple: What's The New Price Target?

We have been advising Apple (AAPL) investors to realize profits as the new iPhone 5 was being launched. In our recent Apple update, we gave a sell rating to AAPL and forecasted that the stock will fall below $600. Our valuation gave a price target of $579 for 2013. Apple did miss earnings targets and the stock dipped below $600, as we had predicted. Those who are bullish on Apple are arguing that the stock has bottomed out and is trading at an ex-cash P/E of 8x. The calculations below show that the stock is still trading at around our new 2013 Price Target (PT) of $549 and, therefore, does not have a big upside. Our PT has gone down despite good iPhone 5 sales because Apple's margins have squeezed, as we expected.

A lot of people believed that it would be hard to fill Steve Jobs' shoes and the recent developments have shown that such people may be right. The Apple Maps fiasco and iPhone 5's problems are some of our concerns regarding the post-Steve Jobs Apple. The rapid changes in the Mobile technology sector in the form of the Lumia 920 and Galaxy S3 are disconcerting, to say the least, for Apple. iPhone would be facing tough competition from S3 and Lumia in the holiday season. We still believe that the iPhone 5 will lead the market this year, but its shrinking margins have made us revise our Price Target for 2013. We believe the stock is trading very close to its 2013 PT and there is very little chance of an upside. We are still not bearish about the long-term prospects of Apple, but we believe that the response to the iPad Mini and its margins would be vital to future valuations of AAPL.

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