Why Apple shares took a nosedive

Apple shares suffered their sharpest fall in eight years Monday morning on the word of two analysts — including one whose record predicting the company’s performance is mixed at best.

By 10:30 a.m ET the stock had dropped 16%, wiping out more than $18 billion in the company’s market capitalization in the space of 60 minutes. Apple closed at 105.26, down nearly 18%, its lowest level since May 2007.

The broader market also fell at the opening bell, and then more sharply after the financial bailout plan failed to pass in the U.S. House of Representatives. By the end of the day the Dow Jones Industrial average had lost more than 777 points, its worst point loss in history, down nearly 7%.

But even that paled next to the nosedive Apple (AAPL) took after Morgan Stanley’s Kathryn Huberty, citing slowing global consumer demand, cut her price target to $115 from $178 and her recommendation on Apple from “overweight” to “equal-weight.” (see Apple bruised in downgrades)

In a survey of eight leading Apple analysts last September, Huberty was rated the “worst” based on her ability to estimate the company’s quarterly sales (see chart at right). For fiscal Q2, for example, she predicted that Apple would sell only 1 million iPhones. Actual iPhone sales that quarter were 1.7 million. (see here)

The other analyst to downgrade Apple on Monday, Mike Abramsky of RBC Capital, has a considerably stronger track record. In fact, he is one of seven “star analysts” on Yahoo finance, based on the accuracy of his estimates of Apple’s earnings per share over the past two years. His estimated EPS for fiscal Q2, however, was off by 4.5%.

On Monday Abramsky downgraded the stock to “sector perform” from “outperform” and cut his price target to $140 from $200, citing a survey that showed a sharp decline in the percentage of consumers who plan to buy a Mac in the next 90 days.

Investors at The Mac Observer’s Apple Finance Board, who tend to be bullish on the stock, blamed the price collapse on short-sellers who dumped Apple shares even before news on the bailout vote came out.

Apple’s fiscal year ended on Saturday, Sept. 27. The company is expected to easily beat its guidance numbers on the strength of record sales of iPhones and MacBook computers. See, for example, here.

UPDATE: In a note to clients issued Monday afternoon, Piper Jaffray’s Gene Munster cited Huberty and Abramsky’s downgrades as the primary reason for Apple’s falloff, but downplayed their concerns. His bullet points:

  1. 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.
  2. 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.
  3. 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.
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