“We pose the question at a high level,” reads a note from BMO Capital analyst Keith Bachman, seen by Barron’s. “How many times in the history of any consumer goods industry has any one company dominated a market segment profit pool?”
The answer to the question, as supplied by Bachman: “We cannot think of any. Competitive innovation usually levels the distribution of profits longer-term, in our judgment.”
The question was in regard to Apple (NASDAQ:AAPL), which once again roared to the top of the stocks-to-watch pile after touching a fresh 52-week low below $400 per share on Thursday afternoon. Analysts have surfed the stock’s decline since September, punctuating the ride with downgrades, price-target cuts, and skepticism about the company’s ability to innovate. Bachman is by no means the first, and will unlikely be the last analyst to take a step toward the bearish end of the spectrum.
His note contains many of the same concerns that have been highlighted by analysts, investors, and curious observers over the past few months: that Apple products are too expensive for emerging markets, and that Samsung (SSNLF.PK) has now gained the initiative…
“We believe Samsung has better phones than Apple at present, though Apple has much better (and fully integrated) software,” said Bachman in the note, summing up what some other analysts have come to believe. Checks with retailers suggest that the Galaxy line is proving to be a smashing success, and Bachman’s conclusion is that Samsung will outsell Apple in 2013. The name of the game has become emerging markets, and Android-backed Samsung phones are currently more appealing to those consumers.
Getting back to Bachman’s question (“How many times in the history of any consumer goods industry has any one company dominated a market segment profit pool?”), and the hypothetical answer (none), pretty much sums up an increasingly popular idea about Apple’s stock. That is, excessive profits never last — a 70-percent profit share is not a reason to celebrate, it is a reason to sell. That slice of pie can only shrink.
That said, Bachman maintains a Buy rating on the stock, although he did reduce his price target from $580 to $460, which is far below the current mean price target of $613.53. For the year, Bachman models $173.82 billion in revenue and earnings of $41.24 per share. This compares to the average estimate of $181.03 billion in revenue and earnings of $43.90 per share.