(Updates with Thursday’s closing stock price.)
With shares closing down 12 percent on Thursday, at $450.50, Apple (AAPL) investors were reeling. And so—cue the tiny violin—were the research analysts whose job it is to forecast the whipsawing stock.
On Wednesday afternoon, Apple reported record quarterly revenue but also its weakest profit growth since the iPod era. Analysts had said something like this was possible, but as the stock began falling in after-hours trading, it quickly became apparent they hadn’t factored it into their price targets adequately. Analysts’ lofty estimates—which in early January floated about 38 percent above Apple’s value—became even more out of whack. Now they’re coming back down to earth.
Twenty analysts in Bloomberg’s database reported new price guidance on Thursday, and their average 12-month target now stands at $659—down 14.1 percent from Wednesday’s $773. Peter Misek of Jefferies (JEF) cut his forecast by 37.5 percent, from $800 to $500, and even Topeka Capital Markets’ Brian White, who had reached a level of analyst fame for his huge $1,111 prediction, cut it to $888. Notably, 80 percent of analysts in the database still rate Apple a buy.
As Bloomberg Businessweek wrote earlier this month, covering Apple is hard to do. Those who boosted the stock early saw their own fortunes rise, too, as clients who took their advice could have seen returns in excess of 1,000 percent. Since peaking in September, though, Apple shares have been harder to predict, and analysts find their every report the subject of intense scrutiny. As we wrote:
As the listing with the biggest weight in the Standard & Poor’s 500-stock index, Apple affects anyone using the S&P as a benchmark. Mike Walkley, an analyst with Canaccord Genuity, covers 23 technology companies and says clients often want to hear about only two—Apple and Qualcomm (QCOM), which makes iPhone chips. “Because if I don’t get Apple right,” he says, “I probably won’t get the rest of large-cap tech right.” Analysts who make provocative calls on Apple often find themselves the subject of media attention—all the more so now that Wall Street is split on whether the company will resume its upward path or squander its smartphone advantage to Google’s (GOOG) Android platform. “There is pressure to have a unique take on Apple all the time,” says Ben Reitzes, an analyst with Barclays (BCS). “There is. There is.”
Even if its days of hypergrowth are over, Apple remains an astonishingly profitable company. And, as my colleague Sam Grobart points out, that’s hardly bad news: “At some point in a growth company’s life, it’s going to become a value stock. Issuing a dividend, which Apple started in October, is not an admission of defeat. It’s a way to return some of your earnings to shareholders, which is at the core of why people invest in a company to begin with.”