(By Rich Bieglmeier) The web has been buzzing about a sell rating on Apple (AAPL) by Per Lindberg of Oslo, Norway-based investment bank ABGSC Sundal Collier. The against-the-grain call comes with a price target of $400 for the smartphone and tablet giant.
In making his call, Lindberg reasons, "Competitors are stepping up their campaigns to not only close the lead that the Cupertino company has enjoyed, but also to displace it as the architect of the world's most popular ecosystem of software and services. The facts speak for themselves: (i) Google's Android outsells Apple's iOS by a factor of 4-5x in terms of monthly smartphone activations, (ii) Samsung ships nearly twice as many units of smartphones on an annualised basis (with sales values on a par with Apple's), (iii) the iPad is quickly ceding market share to the tablets powered by Android and Microsoft's freshly launched Windows 8."
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The analyst believes Apple has lost some of its cool factor and must start to compete on the more traditional turf of price. He and a few others believe that Apple needs to release an iPhone mini to compete for the low-end market. Pers points to Nokia's (NOK) 620, a stripped down version of the 920 as an example. And to think, we wrote an obit for NOK not too long ago.
Due to the eroding cool factor, loss of market share to competitors, and a lack of an entry level smartphone, the analyst believes AAPL's earnings will hardly grow in 2013. Lindberg models $180.6 billion in revenue and $44.90 per share in earnings for 2013. As you can imagine, both are well below the street's view of $192.96 billion and eps of $49.39.
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Wall Street call for 11.9% net income growth while Pers forecasts less than 2%. Could the low-ball price call be correct? Let's see…
At $400, using his estimate, the NASDAQ 100 member would trade with a price-to-earnings ratio of 8.9, which is absolutely possible if earnings increase by just 2%. However, in the last five-years, APPL's lowest P/E is 11.35 during the 2008 financial crisis. In fact, minus a negative P/E in 2001, it's the lowest multiple since 2000.
Using Wall Street's consensus of $49.39, the P/E would have to fall to 8.09 and not too far from 8.9. However, if earnings to grow by 11.9% and meet the 2013 target, iStock would expect the P/E to at least match profit growth, at some point in the year, or a price-tag of $587.74.
Apple has missed the mark two straight quarters, falling short by 10.10% two quarters ago and by 0.90% last time out. If the trend continues, Wall Street's 2013 numbers could prove to be too high; average those out to 5.5% and 2013 eps could fall to $46.67.
On a price-to-sales (P/S) basis, Lindberg's $400 target gives AAPL a market-cap in the neighborhood of $376 billion; which means the company would be valued at a touch more than 2 times sales with his $180.6 billion revenue prediction. In the last five-years, Apple has traded with a P/S ratio as low as 1.9. It's possible.
If interest in the iPhone is waning, iStock should find evidence of this in search volume intensity as measured by Google Trends. Guess what, it doesn't look good comparing post-iPhone 4s trends versus post-iPhone 5 trends. The difference in total search volume scores between the two phones is 0.84% in the two-months following peak, launch search queries. That's more in-line with Per Lindberg's estimate than Wall Street's.
To answer our headline's question, can Apple (AAPL) hit $400? Yes, it can if Lindberg and Google Trends are correct.