Being No.1 just isn’t enough for Apple anymore

Apple Stock Analysis
Apple Stock Analysis

Being the most profitable technology company in the world with the best-selling smartphone on the planet just isn’t enough for Apple (AAPL) anymore. The company’s stock is down more than 35% over the past six months as investors continue to worry that the company can’t possibly maintain the unprecedented growth rate it has seen in recent years. All hope is not lost, however, and one industry watcher has outlined three phases of a recovery plan that he says will reverse the soured Apple sentiment and initiate “sustainable Apple stock recovery.”

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“We believe creating a safety net around Apple’s stock with a larger cash distribution is the first phase necessary to stabilize Apple’s stock price, followed by a trough in the profit cycle and the ability to open up new, large market opportunities,” Topeka Capital Markets analyst Brian White wrote in a note to clients on Tuesday. “We believe Apple can complete these three phases in CY13, providing the necessary fuel to push the stock meaningfully higher over the next year.”

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The first phase involves making better use of the enormous cash horde Apple has amassed. “We continue to believe that Apple should increase its quarterly cash dividend payout to $3.75 to $5.00 per share (annual yield of 3.3% to 4.4%),” the analyst wrote. “At the same time, Apple has plenty of room to ramp up the stock repurchase program to as high as $100 billion as part of a five-year initiative. If debt is part of the equation, investors will be more than happy to see Apple assume leverage to pay out more cash.”

Phase 2 is dependent on renewed growth. “For both the EPS and operating profit cycle, we are modeling a 19% YoY decline in 2QFY13 and the trough for this cycle before returning to positive territory in 3QFY13 and beyond. Clearly, the trajectory of the growth will require new growth opportunities and that leads to us to Phase 3.”

Finally, phase 3 requires Apple to open some doors that tap into new growth opportunities. The obvious bullet points here are new product launches that include a cheaper iPhone, an Apple-branded HDTV and the much rumored iWatch.

“The third phase in a sustainable recovery in Apple’s stock price is the Company’s ability to open up new growth opportunities, which we believe has the potential to come in a variety of flavors,” White wrote. “First of all, the introduction of a lower priced iPhone this year will allow Apple to tap into 60% of the smartphone market that the Company is currently missing out on. Secondly, a relationship with China Mobile will offer Apple access to 715 million wireless subscribers, including 95 million 3G subscribers at the end of January. Finally, totally new product categories such as Apple TV and the much speculated iWatch provide new areas of growth for the Company.”

Topeka maintained its Buy rating on Apple shares with a sky-high $888 price target.

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