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.
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.
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
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.
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.
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.
Copyright © 2013 Microsoft. All rights reserved.
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.
The otherwise all-male board will now include former Pearson CEO Marjorie Scardino, but women directors remain a rare sight at Silicon Valley tech companies.
VIDEO ON MSN MONEY