Here’s Why Doug Kass is Shorting Apple
Seabreeze Partners’ Douglas Kass, a known Apple (NASDAQ:AAPL) bear, is predicting doom for the company ahead of its earnings report due this afternoon. Kass told CNBC that he preferred to short Apple rather than own it and predicted that the company’s stock could trade under $550 per share through June. Apple closed at $504.77 on Tuesday.
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“I think that earnings estimates are going to be slashed and I think expectations for a margin recovery and higher [average selling price] is wrong footed,” Kass said. “I wouldn’t be surprised if we end up in their September 2013 year for earnings instead of being $47 to be closer to $40, and that will be a very big disappointment.”
The Apple doubter also agreed with the Wall Street consensus that Apple may report its first quarterly earnings decline in nearly 10 years. Although revenue is expected to grow 19 percent to $54.9 billion, according to FactSet estimates, Apple is expected to report earnings of $13.47 a share. That compares with earnings of $13.87 a share in the same period the previous year.
According to Kass, the increased competition and its own massive growth had hurt Apple. The company may have spent years launching one “market-defining” product after another, but it was losing its “first-mover advantage.” The popularity of Amazon’s (NASDAQ:AMZN) Kindle and Google’s (NASDAQ:GOOG) Nexus 7 had crowded the tablet market, while the iPhone already faced increased competition from Samsung (SSNLF.PK) and other Android products.
Another factor causing worry was Apple’s contracting gross margins, Kass said. While the company had already guided for significant gross margin declines due to high manufacturing costs, analysts couldn’t predict margins in the second half of the year, he added.
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