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Is Apple the Rodney Dangerfield of tech companies?

By
Philip Elmer-DeWitt
Philip Elmer-DeWitt
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By
Philip Elmer-DeWitt
Philip Elmer-DeWitt
Down Arrow Button Icon
January 3, 2011, 7:57 AM ET
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One of Wall Street’s better analysts wonders why the stock don’t get no respect



Photo: Jim Accordino via Wikimedia Commons

“Why does the market dislike Apple?” asks Oppenheim’s Yair Reiner in a note to clients issued Monday. “It typically grants companies with 70% EPS growth and plenty of runway a premium valuation. Apple is valued at 14x (ex-cash)—like the S&P.”

Reiner had earlier raised, and dismissed, the possibility that Apple’s (AAPL) market cap — at $295.89 billion the highest of any tech company — might be scaring buyers away.

More likely, he says, is that with Google’s (GOOG) Android grabbing market share, investors are secretly worried that Apple won’t be able to sustain the iPhone’s “all-important” price premium.

“If so,” he concludes, “the more lasting consequence of an Apple-Verizon deal won’t be the number of incremental iPhones sold, but that the scale of competition between iPhone and Android could tip sharply in Apple’s favor. If so, Apple’s earnings won’t just rise from the additional Verizon units—they’ll finally get some respect.”

There is another possibility.

If pressure from Android means that the iPhones starts to generate a “more reasonable” gross margin of 40% (compared to its actual 55% and competitors’ 28-38%), about a third of Apple’s EPS, according to Reiner, “would go poof.”

That’s the worry, he says, but given the extraordinary stickiness of the iOS ecosystem and the likelihood that a Verizon (VZ) iPhone with take some of the wind out of Android’s sails, Reiner is betting that the iPhone will continue to enjoy profit margins that are the envy of the industry.

He’s raising his price target accordingly, to $385 from $345. He’s also raised his Q1 2011 earnings estimate to $5.62 per share on revenue of $25.13 billion.

That’s higher than any of the other 21 Wall Street analysts we’ve polled, but lower than most of the blogger-analysts.

We’ll see who’s right when Apple reports its fiscal first quarter earnings on Jan. 18.

See also:

  • Oppenheimer: Apple ‘not too big to blow it out”

[Follow Philip Elmer-DeWitt on Twitter @philiped]

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By Philip Elmer-DeWitt
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