Is This Apple’s Growth Answer?

Apple (NASDAQ:AAPL) needs a lower-priced device to take on the rapidly changing market if it is to prop up its slowly, but surely sagging growth, according to Bernstein Research’s Toni Sacconaghi. The analyst, who cut his price target on Apple shares last week to $750 from $800, said Apple watchers needed to stop fooling themselves by thinking the company’s growth would not slow, but added that he thought it would “remain strong for the next two years.”

What Does Apple’s Future Look Like?

Sacconaghi said that while iPhone sales were likely to remain strong for at least the next two years, Apple could lose overall market share “if it does not bring out a lower-price device.” In addition, while the iPad was “a rocket … an absolute juggernaut,” Apple may be headed for single-digit growth by 2015 unless it came out with a product such as a high-definition television.

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“That said, it will have a pristine balance sheet, and be generating a mind-boggling $49 billion in free cash flow a year after paying its current dividend,” Sacconaghi wrote, according to Forbes. “More importantly, we believe that Apple’s innovation offers significant option value, which is not in our forecast. Three years ago, the iPad did not exist. Today it generates $32 billion in annual revenues, and as a standalone business would be the 11th biggest U.S. tech company. Potential ‘options’ for Apple investors include a lower-end iPhone, a television ‘solution,’ a larger iPad or converged device and monetizing advertising, e-commerce and search from its iOS platform (and credit card database) of 435 million users.’

CHEAT SHEET Analysis: Catalysts for a Stock’s Movement

One of the core components of our CHEAT SHEET investing framework focuses on the factors that could affect a company’s stock. Sacconaghi’s analysis hinted at catalysts that will surely go on to affect Apple’s shares, though he saw no immediate reasons for worry and kept his Outperform rating on the company.

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