Was Apple's stock battering justified?

Summary:Apple's stock price took a hefty battering today after two analysts downgraded their rating of the stock. At close today AAPL stock stood at 105.26, down nearly 18% - the stock's lowest level since May 2007.

Apple's stock price took a hefty battering today after two analysts downgraded their rating of the stock. At close today AAPL stock stood at 105.26, down nearly 18% - the stock's lowest level since May 2007.

  • RBC Capital Markets analyst Mike Abramsky: He reduced his rating on Apple stock from "Outperform" to "Sector Perform."  his price target on the shares is now $140, down from $200. The reason: "a worsening consumer spending environment."
  • Morgan Stanley analyst Kathryn Huberty: She downgraded Apple from "Overweight" to "Equal-weight." Her target is now $115, down from $178. The reason: "PC unit growth is decelerating and the remaining source of growth is increasingly the sub-$1,000 market where AAPL does not play."

Lots more analysis available ... (Techmeme)

Piper Jaffray’s Gene Munster is more upbeat:

  • Consumer is slowing, but Street models reflect the slowdown. Our FY08 Mac unit growth estimate is 40%, going to 16% in FY09. We expect Mac growth of 29% this quarter.
  • We believe margin pressure concerns will prove to be overblown. The Street is modeling for 32% gross margin in FY09, down from 34% in FY08. We expect margin guidance to be 30-31% for December, in line or above the company’s 30% gross margin guidance for FY09.
  • A disappointing preannouncement for Sept. is unlikely. We do not believe Apple will preannounce a disappointing September quarter. Our analysis of two months of NPD data on Mac and iPod, which has a 0.90 correlation, suggests 5% upside to Street numbers.

[poll id=360]

I think that there's more at work here than Apple being affected by a weak economy. My bet is that Apple's figures for the September quarter will be in line with what Munster outlines. But Apple results have disappointed investors for several quarters now, despite announcing record numbers. Take last quarter as an example. It was a record quarter, yet the stock price dropped by 10%. For a while now it seems that investors have had unrealistic expectations for AAPL stock where even record quarters fail to impress. That kind of disconnect between reality and fantasy can only end with a significant readjustment of expectation - and we're now seeing that happen.

How Apple's stock price ends the year now hinges on Q4 08 earnings (10/20/2008) - good news and the price might just go up, but any bad news is likely to hammer the price to well below $100 a share.

Thoughts? Is Apple recession-proof?

Topics: Banking, Apple

About

Adrian Kingsley-Hughes is an internationally published technology author who has devoted over a decade to helping users get the most from technology -- whether that be by learning to program, building a PC from a pile of parts, or helping them get the most from their new MP3 player or digital camera.Adrian has authored/co-authored technic... Full Bio

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