Piper: Apple still a 'buy'

Apple stock should still be rated a "buy," despite its recent stock slide, say Gene Munster and Michael Olson from the research firm Piper Jaffray. The analysts first deconstruct the reasons for the drop: foremost may be Apple's guidance for the March quarter, which has an EPS 15 percent below expectations from The Street, at $0.94, but with revenue only 2 percent lower, at $6.8 billion. Year-over-year iPod growth was also only 5 percent in the December quarter, versus 50 percent in the same period of 2006. Finally, the state of the economy may be deterring even wealthier people from buying expensive electronics.

The depressed state of Apple represents a buying opportunity however, according to Munster and Olson. They suggest that the investor panic is an overreaction, in part because Mac sales are continuing to grow; December-quarter market share was in fact 3 percent higher in 2007 over 2006, the largest Mac share increase in at least seven quarters. Valuation of Apple stock, meanwhile, is currently at 25x NTM EPS, whereas the two-year low is 24x, and the two-year average is 31x.

The 2.3 million Macs sold last quarter is further said to be a 7 percent sequential growth, instead of what could have been a flat figure for the past two years. Slowing iPod sales are said to be a serious concern, but Apple claims that the iPod touch is just the beginning of a Wi-Fi mobile platform, and so there is still plenty of economic potential.

by MacNN Staff