The Apple recovery is on its way

A full-fledged recovery will take time and arrive in 3 stages, according to one analyst, who sees the recent dividend hike as the first stage in the company's turnaround.

By TheStreet Staff May 13, 2013 6:10PM

thestreet logoSmart watchesBy Chris Ciaccia

 

Much has been made of the decline in Apple's (AAPL) share price, from $700 in September to below $400 this spring. That fall has prompted more than a few analysts and investors to write off the the company and the stock. Others, however, want to know whether a recovery may be at hand.


It is, if you believe one Wall Street analyst.

 

Brian White at Topeka Capital Markets has identified what he calls Apple's three-pronged approach to achieving a sustainable recovery in the price of its shares: Returning cash to shareholders; a rebound from a trough in the company's profit cycle; and new areas of growth.


White rates Apple a "buy" and has a price target of $888, which represents a near doubling from its current price.


Money to shareholders 

Apple has already completed the first part of this recovery process, announcing last month that it would increase its share buyback program by $50 billion and raise its annual dividend by 15%. Apple now intends to return $100 billion to shareholders over the next three years, way more than the $45 billion it had announced in March 2012.


Some investors had been clamoring for Apple to return more cash to shareholders. Those investors include Greenlight Capital's David Einhorn, putting pressure on CEO Tim Cook and his team to respond. The tactic worked, and the stock is up about 14% since April 23, when Apple reported fiscal-second-quarter financial results and announced the dividend hike.

 

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 suggest 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.


More iDevices? 

The last part of the recovery is all about a return to what Apple's been about over the past 30-plus plus years: innovation and design. Apple has always made beautiful, aesthetically pleasing products, and packaged them together with great marketing and the ability to use them easily. These products "just work," as Steve Jobs once famously said at a conference.

 

There's been much talk about where Apple will go with the brand, and who it partners with to sell more iDevices. On the earnings call, Cook hinted at where Apple could go down the line, even laying out a time frame, which is unusual for Apple. "Our teams are hard at work on some amazing new hardware, software, and services that we can't wait to introduce this fall and throughout 2014," Cook said in his prepared remarks. "We continue to be very confident in our future product plans."

 

Apple has increasingly talked about new software and services, as it tries to change the line of thinking that it's simply a hardware company. It's not, as it generated more than $4 billion in software and services revenue last quarter, but that gets overshadowed by the enormous revenue from iPhones, iPads and other hardware. A revamped version of iTunes expanded into mobile payments could be the boost software and services needs, but analysts, including White, think Apple has more in the way of new hardware to entice consumers and investors alike.

 

The oft-rumored iWatch could generate as much as $5 billion in revenue for Apple. There's also the long-awaited Apple TV and the potential for a deal with China Mobile (CHL) to really juice revenue and earnings.

 

Apple is starting to turn the ship around, and setting the stage for a return to growth in 2014 and beyond. It appears the market has already started to price that in, as it waits for "one more thing."

 

More from TheStreet.com

19Comments
May 14, 2013 8:17AM
avatar

Ahhh- all the nay sayers out there now will be buying & pushing up the stock price again- I just love it. With the stock buy backs & dividend payments we'll be receiving, it's going to be a GLORIOUS summer & we'll still be able to maintain our core investment for our future ROI's.

 

V_L, Regal, Koo_K, someone, Rustupid, & other IDIOTS that continue to bash & complain will only get left behind- not as if they're behind already. Fat Cat just wants  to bait you into a argument & looks like he's been successful with you old coots !

 

I see a new surf board for this summer waves, and what the hell- I'll get another tablet because -I can! It's only money - until you can put it to use.

 

 

May 14, 2013 9:51AM
avatar
What this article conveniently leaves out is the decline in I-tunes sales/revenue which is one of Apples largest sources of revenue.  Their are always new ways to get music on-line and now younger kids are streaming music and using new programs to get their music.  Also the 3rd point of the article is that it just  needs to innovate again, well no schit but that's easier said that done.  For years their products have been more and more incremental in advancement and less innovative.  The phone market is heavily saturated now and they have nothing that can match the new Galaxy 4 coming out, the I-pod is now obsolete and PC's are becoming that way for a large number of consumers.  The tablet market is great for them but they under cut their own product with the I-pad mini which sells at a lower margin then the normal I-pad.  They have to either invent a new product type which will totally catch everyone by surprise or have by far the best products in their class to get back to the profits they once had.  Not impossible but difficult. 
May 14, 2013 12:00AM
avatar
Apple is great. It will be nice to see what is coming.
May 14, 2013 9:31AM
avatar

Apple is over, the iToy craze is over.

 

Nokia and Samsung are the best phones in that order. Everyone makes tablets, from super cheap android to  win 8 tablets are also real computers.

 

Apple wont become a blackberry but unless they make a better phone they could, the iphone 5 looks like a 2005 model still.

May 14, 2013 7:16AM
avatar

Hope all you want for a bright and shiny new Apple product, but don't hold your breath. The globe isn't going to embrace more job-ending technology. When technology returns to a subordinate role and we have our dignity, security, employment and privacy restored... there may be tolerance for such folly. Unlike the Fat one, my equipment is state-of-the-art and my e-conduits are growing. The problem is in the anonymity. Users now rely on the vagueness to get away with petty offenses, unethical behavior and irresponsibility. When Apple or any other "tech" can represent a buyer as having the wherewithal and a track record of follow through, or a retailer with the substance to manage credit and deliver what it represents, then they will be on the right track. We don't need new "devices"... we need to get rid of divisiveness. My worst customers are I-Phone users. If you are going to rely on a handheld device, be sure you scroll thoroughly and buy accurately.  

May 14, 2013 6:00AM
avatar
Mr. Fat Cat still gets his mail from the Pony Express and then has the temerity to dump on Apple's state of the art products.
May 14, 2013 2:10AM
avatar
I have a 15 year old computer and an Ooma phone. I don't have cable or satellite either. I just use a Hi-Def antenna to get all the TV I need. 

In short, I don't need any of the junk Apple makes. Why anyone else needs their stuff is beyond me. I think those that do lead empty lives and need to fill them up with gadgets to amuse themselves.

Har har har me mateys!
May 13, 2013 8:30PM
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT TECHBIZ

Start investing in technology companies with help from financial writers and experts who know the industry best. Learn what to look for in a technology company to make the right investment decisions.

RECENT POSTS

6 ways Google screwed up with Glass

Consumer backlash has garnered plenty of attention for the tech giant's admittedly exciting and innovative eyewear. But here's why it will be remembered as a botched product launch.

VIDEO ON MSN MONEY

RECENT QUOTES

WATCHLIST

Symbol
Last
Change
Shares
Quotes delayed at least 15 min

MSN MONEY'S