For years, analysts could forecast Apple’s (AAPL) stock movements with a single word: up. The company’s hit parade of new products like the iPhone and iPad led to record-breaking quarterly profits and expectations that Apple could become the first U.S. corporation with a $1 trillion market value. Bullish analysts saw their own careers climb in tandem, as investors who bought the stock on their advice captured huge returns.
Now, with shares down 24 percent since Sept. 19, the challenge of predicting where the stock goes next has produced wildly varying forecasts. One analyst sees the stock falling from its Dec. 31 close of $532 to below $300 this year, while another says it will soar above $1,000. The average among analysts tracked by Bloomberg is $735. As the listing with the biggest weight in the Standard & Poor’s 500-stock index, Apple affects anyone using the S&P as a benchmark. Mike Walkley, an analyst with Canaccord Genuity, covers 23 technology companies and says clients often want to hear about only two—Apple and Qualcomm (QCOM), which makes iPhone chips. “Because if I don’t get Apple right,” he says, “I probably won’t get the rest of large-cap tech right.”
Analysts who make provocative calls on Apple often find themselves the subject of media attention—all the more so now that Wall Street is split on whether the company will resume its upward path or squander its smartphone advantage to Google’s (GOOG) Android platform. “There is pressure to have a unique take on Apple all the time,” says Ben Reitzes, an analyst with Barclays (BCS). “There is. There is.” Viewers of Fox Business Network (NWS) heard an upbeat anchor introduce a segment this way on Oct. 25: “Brian White, senior analyst for Topeka Capital Markets, has an astounding price target. Astounding! And he joins us now!” White’s target: $1,111.
Hating on Apple gets attention, too. “Meet Ed Zabitsky, the man betting against Apple,” read an April 7 headline in London’s Daily Telegraph about the ACI Research analyst, who forecasts $270. Canaccord Genuity’s Walkley says media fascination with Apple’s struggles makes his job more challenging. “Yesterday, on CNBC (CMCSA), I didn’t really want to do it,” Walkley says of a mid-December appearance on the network. “I had a buy on Apple, I’m positive, and they wanted to be real negative, and so it was like this confrontational interview. Negative news sells on Apple.”
Apple’s rise was so explosive that standard measurements of technology stocks proved inadequate. It didn’t beat analysts’ expectations so much as crush them, often selling millions more smartphones and tablets per quarter than predicted. Even as sales and profits soared, Apple managed to sustain growth rates more typical of tiny startups. “One thing that was different was how much they beat [estimates] by on a routine basis, both in percentage terms and in absolute magnitude,” says Andy Hargreaves of Pacific Crest Securities. “Once they launched the iPhone, I mean, it was astounding—they’d come through with these beats that were like $5 billion, $10 billion.”
Apple forecasting is further complicated by the company’s penchant for telling analysts and the public little about its plans. While Chief Executive Officer Tim Cook has pledged to “double down on secrecy,” leaks have increased, and some analysts say his tenure has begun to produce more data. “The level of transparency has gone up,” says Piper Jaffray’s (PJC) Gene Munster, citing Apple’s disclosure of how many TV boxes it sells. “It’s been a very clear shift since Cook took over.”
Since September, Apple’s decline has been so precipitous that it, too, has confounded the professionals. At $532, it was trading below the target price of all but two of the 51 analysts tracked by Bloomberg. One reason Apple’s moves are so difficult to anticipate is that its success has come from conjuring unprecedented consumer demand for entirely new product categories—complicating efforts to capture the company in conventional metrics. Apple entered the entertainment business in 2003 with the iTunes store; then it became a handset manufacturer with the 2007 launch of the iPhone. Now competitors such as Samsung Electronics, Google, and Amazon.com (AMZN) threaten to eat into the profits of markets Apple created.
More than 70 percent of Apple’s 2012 revenue of $157 billion comes from iPhone and iPad sales. “This is Tim Cook’s greatest challenge right now, to rise above the competition—to rise to the challenge of Google and what Android represents,” says Barclays’s Reitzes. “It’s the greatest challenge in my 10 years of covering the company.”
Apple’s weakness at the end of 2012 may stem from the realization that only another revolutionary product can reignite the stock. Customers are hoping design guru Jony Ive will create a next-generation television, but analysts are skeptical that the category is big enough to make a meaningful contribution to the company’s bottom line. “To grow that business, you need a new product that’s going to be one of the most successful products in the history of consumer electronics,” says Pacific Crest’s Hargreaves. “Otherwise it doesn’t move the needle.”
Munster, who made his career as an early bull on Apple and sees shares hitting $900, thinks the next star analysts will be those who figure out where the iPhone’s growth will come from. “In 2013 or 2014, the biggest shift is going to be that the analysts relevant on Apple are those who understand emerging markets,” he says. “The playing field will shift away from the U.S. and Europe.”
Covering Apple isn’t all stress. Like journalists, analysts are invited to attend the company’s blockbuster product launches. “Those are almost like historical events,” says Shaw Wu of Sterne Agee, who was present for the unveiling of the original iPhone. “I don’t know how many times I saw Steve Jobs onstage in the last decade.” He never communicated with Jobs, though, as many journalists did. “He was almost like a god, right? A legend. I never had the guts to do that, but I kind of regret it, to be honest, that I didn’t say anything. I heard he read our reports.”
The bottom line: With Apple shares weighted at 3.95 percent of the S&P 500, analysts find every word of their reports heavily scrutinized.
