Analyst: The Nightmare on Apple Street Will End

Apple’s (NASDAQ:AAPL) shares will remain volatile until the end of 2012 because of profit-taking ahead of higher capital gains tax rates next year, Sterne Agee’s Shaw Wu said. He added that there was a possible upside surprise in iPhone profitability this quarter, but supply constraints related to the iPad mini were persisting and the fourth-generation iPad was experiencing some cannibalization.

What Does Apple’s Immediate Future Look Like?

Apple’s recent instability — the stock has dropped almost 22 percent from a closing high of $702.10 in September — comes from “non-fundamental factors,” including profit taking, Wu said. The iPhone maker has been an “outstanding performer” in 2012 and now investors are opting to lock in gains ahead of fears of higher taxes sparked by the fiscal cliff, the analyst added.

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“However, as we enter 2013, investor sentiment will likely shift back to fundamentals,” he said. “We are at the beginning of two big product cycles that will likely last 3-5 quarters and see margins poised to improve with greater scale and improving yields.”

How Was the Quarter for Its New Products?

Turnaround times for the iPhone 5 have come down to same day from the recent two to four days, said Wu, who got his information from Apple’s supply chain. The analyst upped his iPhone prediction to 47.5 million for the holiday quarter, up from a previous forecast of 47.3 million. The Wall Street consensus is for Apple to sell between 45 million and 46 million iPhones in this first fiscal quarter for the company.

However, Wu reduced his projected iPad sales from 25 million to 23.5 million, dropping it below the market consensus of between 23 million and 24 million. Continuing constraints on iPad mini supplies as well as lower build orders for the fourth-generation iPad, whose sales have been slower than expected because of some cannibalization from the smaller tablet, had hurt estimates. The demand for the iPad mini was still strong, though, Wu added.

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