Putting a sell recommendation on the world’s most valuable company is hardly a way to win friends and influence people on Wall Street and Bay Street.
But Edward A. Zabitsky, Chief Executive Officer of Toronto-based ACI Research is betting that shares of Apple Inc. (NASDAQ: AAPL, Stock Forum) will go considerably lower in the coming year.
“I don’t care about being popular anymore,’’ explained Zabitsky, who provides independent research to tech-centric hedge funds and mutual funds.
Speaking on the phone to Stockhouse, he said he is maintaining a $270 target for Apple, which has seen its share price fall from a 52-week high of $705.07 in September to $599.08 on Wednesday, leaving the consumer electronics giant with a market cap of $562 billion, based on 937.4 million shares outstanding.
In making the call, Zabitsky is a lone voice in a community of 62 analysts who follow the stock, according to Bloomberg News. Many of those analysts expect the stock to go higher from current levels.
Indeed, in the fourth quarter of fiscal 2012, (ended September 29), the company said it sold 26.9 million iPhones, a 58% increase from last year.
It also said demand for the newest version of its smartphone – the iPhone 5 – continues to outstrip demand.
In the fiscal fourth quarter, Apple posted a net profit of $8.2 billion or $8.67 per share, up from $6.6 billion or $7.05 a year earlier. Revenue in the quarter rose 27% to $36 billion.
But Zabitsky says a number of short and long term factors will put pressure on Apple’s margins, eventually driving the stock price towards his 1-year target price.
In the immediate future, they include competition in the smart phone sector from Samsung Electronics Co.’s (GREY: SSNLF, Stock Forum) Galaxy Nexus line and Google Inc.’s (NASDAQ: GOOG, Stock Forum) Android 4.2 (“Jelly Bean”).
In a report this week, Canaccord Wealth Management said Mobile software head Scott Forstall, along with retail chief John Browell, have been pushed out as Chief Executive Officer Tim Cook embarks on a sweeping management overhaul as Apple grapples with a sagging share price and competition from key rivals accelerates.
Over the longer term, Zabitsky believes new technology will leave smart phone users much less tied to their handset’s operating systems, and more able to access the same programs and content from any device.
Google, for example, has just announced the sale of its Nexus 4 device, which allows users to upgrade the software and is not tied to any specific carrier.
As a result, Apple might lose its exclusivity and would have to start cutting prices, putting it in the realm of having to compete with handset manufacturers, wireless carriers, and internet giants who already have Apple in their sights.
As the fourth quarter financial results would suggest, this obviously isn’t going to happen overnight.
But Zabitsky wonders how long Apple can maintain its leading position in the smart phone market.
“There is a core group of consumers who live their lives around Apple,’’ he said. “But you would be surprised how many fair-weather Apple fans there are out there.’’
Meanwhile, Apple was facing some potential near-term trouble this week when a British Columbia woman filed an action in the B.C. Supreme Court, alleging that the company has violated the privacy and security of users of the iPhones, iPads and iPods that are using the iOS4 operating system.
Amanda Ladas, of Surrey, B.C., has filed a lawsuit under the Class Proceedings Act in a bid to have the action certified as a class action lawsuit. If she is successful, up to seven million users of Apple devices in Canada who use the iOS4 system would be able to join in the lawsuit.
The application is expected to be heard towards the end of 2013.
Details of Ladas’s allegations are outlined in an earlier Stockhouse Report.