Can Apple Live Up to 2011 Expectations? (AAPL, MSFT, XOM, T, VZ, ADBE)

Apple Inc. (NASDAQ: AAPL) is the stock market darling that almost no one wants to hate.  Finding negative analyst reports is a difficult task.  The company over-delivers on most products and continually exceeds estimates.  Its products seem to almost never miss and it has become the #2 company in America by market cap.  All sentiment and history aside, it is at least fair to ask if Apple will be able to deliver in 2011.  We are taking a 360-degree review of Apple’s chart, analyst estimates, price targets, its own outlook, outside forces, options trading, and more to see where Apple will be standing at the end of 2011.

It is almost impossible to bash Apple as a company.  Even though we have coined the phrase “consumer lemmingism” describing how customers amazingly do not revolt against Apple’s constant product version updates, it still wins.  We also recently went as far as outlining how passing Microsoft Corporation (NASDAQ: MSFT) as the #2 company by market cap may only be a speed bump to becoming the most valuable company in America ahead of Exxon Mobil Corporation (NYSE: XOM).

Beyond our concerns and beyond our optimism, we want to look at the outside information to see what the 2011 prospects are for Steve Jobs and friends.  Analysts have been mostly positive of late… Goldman Sachs came out with a $430.00 price target after Morgan Stanley removed Apple from its “Best Idea List” but still maintained an Outperform rating.

The consensus analyst price target from Thomson Reuters is listed as just over $371 today.  With shares roughly at $326.00 on Wednesday, that implies consensus upside of almost 14%.  If Goldman Sachs is right at its $430 target, then Apple has an implied 32% upside from the current share price.

Discussing Apple’s chart is hard to add much color to because it is trading less than $1.00 under its all-time highs.  Many expect that upside to continue and its 50-day moving average is all the way down at $314.77 and the 200-day moving average is all the way down at $272.43 today.  For whatever it is worth, it may take the next news catalyst beyond the iPhone to boost shares much because the intra-day signal some tighter ranges than in the past.  Maybe that will be earnings in January, or maybe it will be something else shortly after the Consumer Electronics Show.

AT&T Inc. (NYSE: T) is due to lose that American iPhone exclusivity momentarily as Verizon Communications (NYSE: VZ) is set to launch its own iPhone in early-2011.  Apple has signaled that it wants to go to a dual-distributor in each major local market around the globe so that it is no longer reliant upon just one cellphone carrier in each market.  Then there is the iPad2 due early in 2011.  The software standards war being fought with Adobe Systems Inc. (NASDAQ: ADBE) has also failed to crimp Apple even though there was proof that many iPhone/iPad users want Flash to be allowed.

Apple has so far refused to commit to a dividend.  Steve Jobs wants that cash as a reserve and for ‘strategic opportunities’ which could imply acquisitions. The company is becoming more and more of an international story each quarter, making the US-dependence less and adding in a broader currency risk management angle that was less of a factor before 2010.

Now the market cap is challenging a whopping $299 billion, versus $370 billion for Exxon Mobil and versus about $240 billion for Microsoft.  It will be harder and harder for for market makers to suddenly gap the stock up 10% on news without any trades occurring along the way.  At $300 billion, it takes real inflows of Capital to drive share prices higher and higher as all shareholders can sell for a profit.

The speculators have long-used options as a tool to speculate on the upside in Apple rather than paying $32,600.00 per 100 shares.  The closest speculative calls are the $330.00 CALLS, and the JAN-2011 $330 CALLS trade for about $8.40 today.  Using in-the-money calls is also used by many traders and the JAN-2011 $300 CALLS trade for roughly $28.50 today.  To show just how active the speculation is, the JAN-2011 combined open interest of the call options with strike prices as low as $250 and as high as $400 comes to a whopping 398,349 contracts.  That translates to almost 40 million additional shares on a fully leveraged basis just in the monthly call option contracts without even considering those weekly expiration options.  Average daily volume is about 17 million shares and we have seen recently how daily options were actually ahead of the total stock volume on light days.

There is also a take on consensus analyst projections from Thomson Reuters.  The expected growth for fiscal September 2011 is $19.19 EPS on $88.33 billion in revenues, which represents growth of 26% on earnings per share and over 35% on revenues.  For 2012, those estimates are for 17% earnings per share growth to $22.51 EPS and for 16.5% revenue growth to $102.93 billion.  The shrinking margin is something that has likely hamstrung the stock of late.  The company warned of continued margin pressures, and frankly that should be considered a known event by now.

Apple closed out 2009 at $210.73, giving it performance of 54% year-to-date in 2010 with only two trading sessions left in 2010.  For Apple’s stock to rise another 50% from $326 today would imply that the share price is about $489.00 and would infer a market cap of almost $450 billion.

We have tried to remove all the noise, hype, and concern from the equation just to focus on the trends and the expectations to get to a 360-degree review for what lies ahead in 2011 for Apple.  The consensus is for continued out-performance ahead.  Whether or not that occurs depends upon more factors than just the economic recovery.  Stay tuned.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG