Apple's Stock: How Big of a 'Jobs Premium'?

Now that Apple (AAPL) CEO Steve Jobs is taking a medical leave of absence through the end of June, will shareholders lose the "Jobs premium" they've enjoyed for so many years?

Amid concerns about the CEO's health, as well as the ability of recession-stressed consumers to continue buying Apple's iPhones, iPods, and Macintosh PCs, some of that premium was already eroding before Wednesday's announcement. Several analysts who spoke late Wednesday expressed confidence that Apple's shares will hold up, and they said they have faith in Jobs' executive team. But it remains to be seen whether retail investors will agree or vote with their feet and send the stock plummeting.

Apple's shares closed at 85.33 on Wednesday before the news broke. Shares fell sharply in after-hours trading, dropping by as much as 10%. As of 8 p.m. the stock was trading at 79.30, down 7%.

So how much has Jobs been worth to Apple's stock? Rick Hanna, an analyst with Morningstar (MORN) in Chicago, figures that Apple was trading 10% to 15% higher because of Jobs' leadership and skills. Graham Tanaka, president of Tanaka Capital Management, believes the stock's 10% drop after the company's announcement basically erased that benefit. Andy Hargreaves, an analyst with Portland (Ore.)-based Pacific Crest Securities, says that a year ago when Apple shares were changing hands at about 170 each, that premium was probably around 20% to 25%. Already, Apple's share price had fallen from an all-time closing high of 199.83 on Dec. 28, 2007. (The shares cracked $202 in intraday trading a day earlier.)

"Pretty Big Shoes"

Despite the uncertainty over whether Jobs will return, many analysts are sticking with their favorable recommendations. "The stock is not trading at much of a premium to its cash earnings—it's now at eight or nine times cash," says analyst Shannon Cross of Cross Research in Livingston, N.J., who is keeping her buy opinion on the stock. "This is something the market will have to digest," she says. "And hopefully he'll come back in June."

Says Hargreaves: "Anybody that's been buying that stock over the last six months knows that his health was a big concern and that it was very possible that he could leave in the near future."

Even with Jobs on medical leave, "our strong buy opinion reflects the potential we see for new products to spur sales, tempered by our projection of a downturn in gross margin trends and potential for consumer electronics demand to moderate with the U.S. economy," says Tom Smith, who follows the stock for Standard & Poor's Equity Research (which, like BusinessWeek, is owned by The McGraw-Hill Companies—MHP). Smith is keeping his 12-month price target of 127.

Analysts praise the executives who have been handling Apple's day-to-day operations and overseeing new product launches, including Chief Operating Officer Tim Cook, who will take over for Jobs. Apple "is not just about Steve Jobs, but about his vision, which others in the company implement," says Tanaka, who owns shares.

Still, Morningstar's Hanna worries Apple's management won't have the same chutzpah to seek out new opportunities and execute them, and then market them with the same zeal as Jobs. "He leaves pretty big shoes to fill, if that's the case," he says.

At the very least, Jobs' leave of absence will give investors the chance to face up to his inevitable departure, whenever that day comes, Hanna says. "That may be healthy for the stock in general, instead of trading on emotion," he says.

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