Why so many Apple price targets still underwater

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Friend-of-the-pod David Thall suggests three reasons:

Just last week PED reported that two-thirds of the analysts covering AAPL were underwater. In the wake of AAPL’s price surge, several have since raised their price targets, but most chose to remain underwater. Some very deep underwater. Deutsche Bank, for example, confirmed that was sticking with $175 even as AAPL hit a 52 week high of $228.87.

My question is, why?

I see three possibilities.

1. Conservative client management. Giving them the benefit of the doubt, they are doing what they think is their job – protecting their client’s money from short-term volatility in a market and a stock that’s at all-time highs. Logic says, nothing goes straight up. So take risk off.

Problem with this short-term thinking is, they consistently miss out on enormous wealth creation during one of AAPL’s historic breakout periods.

2. They think AAPL is over-valued. Their analysis uses metrics that indicates AAPL has gone up too far too fast. So take risk off.

Problem is, more often than not they cherry-pick data and don’t take into account the fact that Apple is not standing still and has new products and services coming. Always has, always will. Next year they are launching a streaming video subscription service to compete with Netflix and others, just to name one potential sea change.

3. They’re incompetent. Well, granted this may be a cheap shot, but some people are just mediocre at their jobs. Wall Street analysts are no different. They can only see Apple as the “iPhone company” with slowing sales and growth. Like the proverbial steel mill going out of business. They are inherently shallow in their thinking and have no real understanding of Apple’s unique business model and management philosophy. All they see is just another tech company to be measured like any other stock.

Not to mention these analysts are oblivious to the analyses of bonafide experts like Warren Buffett who have proven track records and have explained very carefully why AAPL is a no brainer – long-term.

My [that is, Thall’s] take: It’s a combination of all the above. But perhaps mostly, they get to tell their clients, ’see, we met our targets.’ Why? Because when your target is always underwater you always hit it. AKA: Bragging rights through cheating. Their clients would do just as well flipping a coin.

Conclusion:  These analysts are all wet. Ignore them.

My take: I’m channeling a wise guy called daugherty who in another forum suggested a 4th possibility:

You left out “corrupt.” Perhaps they’re doing exactly what they’re told— kicking out reports for the public at large, which are different from what they are privately telling their large clients. How else do you explain being so wrong, for so long, and still having a job that doesn’t include the phrase “would you like fries with that order?”