Submission + - Apple is the New Microsoft Say Stock Analysts
Hugh Pickens DOT Com writes: The WSJ reports that analysts at Barclays have downgraded the iPhone and iPad maker to equal weight from overweight predicting that the stock will remain rangebound for at least the next year, and could suffer growing pains similar to the ones software giant Microsoft experienced when it transitioned from growth stock into a mature, value stock. “Frankly, we just couldn’t quite bring ourselves to use smart watches or TVs as reasons to raise numbers–nor were we fully convinced that these products could move the needle like new categories did in the old days,” Barclays wrote to clients. “As a result, we believe it is time to step aside, given a maturing smart phone market. Barclays offered four similarities between Apple now and Microsoft back then: Market Cap, P/E Ratio, Valuation, and Buybacks. Microsoft’s market cap peaked at about $620 billion in 1999. Apple surpassed that mark in August 2012, but shares peaked the next month suggesting the "the law of large numbers is catching up to them and margins have peaked." Next Apple trades at about 12 times next year’s earnings, down from its P/E of 15.9 in October 2012. By comparison, Microsoft traded at about 20 times earnings in 2004, but its multiple decreased and has roughly maintained in the mid-teen range since then. Next, "both companies seemed to share a peak in the valuation that roughly coincided with the high point in gross margins,” Barclays says. Finally “both Microsoft and Apple bowed to market pressure to issue dividends and start buybacks – and it really did not lead to a resurgence in share price,” Unless Apple really has a breakthrough product up its sleeve, Barclays sees the company’s future looking awfully similar to Microsoft at the turn of the century. “We see plenty of evidence to suggest that each product cycle or ‘next big thing’ will get less and less meaningful. The risk to investors, we believe, is that earnings power ex-buybacks could be flattish stemming from multiple pressures on margins."
