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Analysts rush to issue sour reports on Apple

Following an earnings warning that halved the value of Apple stock this morning, a raft of analysts draft pessimistic reports on the company and caution investors that shares may continue to slide.

3 min read
Following an earnings warning that halved the value of Apple stock this morning, several analysts drafted pessimistic reports on the company and cautioned investors that shares may continue to slide.

Apple issued a grimly worded press release after the closing bell yesterday, announcing that revenue for the quarter ending Sept. 30 would be between $1.85 billion and $1.90 billion, with per-share earnings in the range of 30 cents to 33 cents, excluding gains from investments. Analysts had been expecting Apple to earn 45 cents per share, according to First Call/Thomson Financial.

The company, which raised some analysts' ire by not hosting a phone conference or providing many details for them, said in a statement that it plans to reduce growth estimates for the coming quarter and full fiscal year.

Financial institutions wasted no time punishing the Cupertino, Calif.-based company. The computer giant began selling machines in the 1970s, more than two decades before many of the dot-com companies that have since grabbed headlines and investor attention. But in many ways Apple remains an icon and poster child for the technology industry--including the sector's incredible bull run throughout the late '90s.

Apple, whose investors grew rich thanks to the company's mid-'90s revival and launch of the popular iMac computer, now seems to be mirroring the broader tech wreck gripping the industry.

The company blamed its shortfall in part on lackluster demand for its computers in September--traditionally a strong month because of back-to-school shoppers and college students, long a favorite target of Apple marketers.

Apple shares traded at $26.25 this morning, down nearly 51 percent since yesterday's closing price. At one point, the shares dipped as low as $25.94.

At least 11 analysts issued downgrades this morning, including Andrew Neff of Bear Stearns, who downgraded the company from "buy" to "neutral," noting that the company's stock is still at risk based on several pressing concerns.

"Although the stock will open significantly lower, we are downgrading to neutral for the following reasons," Neff wrote in a research report. "(1) It is becoming increasingly clear that there are macro-level problems in Europe and consumer (markets), which are critical for Apple, (2) Apple's outlook depends on the potential for growth of its platform, its own new product momentum and visibility, its ability to make the shift from a turnaround to a growth company--which will all be subject to question, and (3) the lack of visibility, both near-term and longer-term, will limit upside."

Other analysts were less specific but equally harsh in their critique of Apple's expected performance in future quarters.

"Hard times appear to have hit Apple a little sooner than we had expected," wrote Merrill Lynch analyst Steve Fortuna in a report this morning, dropping his intermediate-term outlook to "neutral" from "accumulate." "We do not see this as a one-quarter phenomenon for Apple but rather as the beginning of many tough quarters ahead."

Downgrades also were issued by analysts at SG Cowen Securities, Morgan Stanley Dean Whitter, Banc of America Securities, Hornblower Fischer and Salomon Smith Barney.

Prudential analyst Kimberly Alexy, the only analyst to issue price targets this morning, cut her fiscal year 2000 and fiscal year 2001 estimates to $1.70 and $2.00 per share from $1.84 and $2.10 per share, respectively. Her 12-month price target was cut to $50 from $79.

PaineWebber analyst Donald Young downgraded Apple to "neutral" from "attractive," with a 12-month target price of $35. His analysis assumes that Apple shares will only increase about $7 per share, or about 27 percent, within the next year. That might top the Nasdaq's overall performance, but it's a fraction of Apple's performance since the mid-'90s.

Shares of other computer makers also sank this morning on the news of Apple's flagging fall sales, and analysts also slammed them--either in their research notes on Apple or in their own unfavorable reports.

In one report, Bear Stearns downgraded most major computer makers in one fell swoop. Other analysts cut their ratings on Dell Computer, Hewlett-Packard and Compaq Computer.

Like many analysts who have inked scathing reports in recent weeks after companies issue revenue warnings, Neff also took the opportunity to chastise the company for its failure to communicate realistic earnings numbers sooner in the quarter.

"While there is no new guidance from Compaq or any other company, we would like to see good news and positive developments and not just explanations for the various blowups," Neff wrote. "From an industry perspective, smoke can sometimes really mean fire."