Apple Soars on Rumors of New Macs & New Math
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Apples ripen in sunshine, but Apple the company ripened thanks to some hot air. Rumors of new MacBooks, a target price upgrade and a lengthy and all together positive segment on CNBC stock picker Jim Cramer's TV show did wonders for the company's stock today.
Research firm Wedge Partners issued a note on Wednesday floating the belief that Apple (NASDAQ: AAPL) would release both new iMacs and new MacBooks "in the next several weeks." The firm expected the iMacs to be redesigned more than the MacBooks.
The firm expects "new, lower price points to drive demand and create a meaningful competitive threat" to the expected flood of new PCs loaded with Windows 7, which is due on October 22. Wedge Partners said it thought Apple could surpass three million units in Q4. It sold 2.6 million in its most recent quarter.
Such a move would be somewhat in line, as Apple did launch new MacBooks in October of last year, and would certainly make sense. The MacBook makes up the bulk of Apple's PC sales, more than two-thirds of it. It's the fourth quarter, and there is increasing optimism for a better Christmas than last year.
Finally, it gives Apple a counterpunch to the Windows 7 launch, something Creative Strategies Analyst Ben Bajarin figured Apple would want. "That wouldn't surprise me. You want to make sure that you've got mindshare going into the fall, and Windows 7 will have a bunch of mindshare. I think Apple sees that momentum, so they have to maintain their own mind share. They want people thinking about Apple," he told InternetNews.com.
Apple did not return calls seeking comment.
New accounting method
Then there was the news of new accounting inside Apple. Word had spread among financial journalists that Apple had asked the Financial Accounting Standards Board (FASB), the organization charged with setting accounting standards for public companies by the SEC, to let it recognize all of the iPhone revenue at the time of sale. The petition can be read here in PDF format.
When Apple sells an iPhone, it does not fully recognize the sale of the unit. Rather, it stretches that sale over two years, or eight quarters, what it feels is the life of the phone.
This news had been floating around some financial blogs for a day or two but it took Cramer to drive the point home. He dedicated a fairly lengthy segment on his "Mad Money" show on Tuesday night, where he explained the change in accounting and raised his target price for Apple shares from $200 to $264.
High praise from Cramer usually causes a big move the next day, which traders call "The Cramer Effect." In this case, that's exactly what happened. Apple rose $6.71 on Wednesday to close at $181.87, the highest it's been since last May.
By recognizing all the revenue at once, Apple could boost fiscal 2011 earnings by as much as 50 percent, Cramer noted. Ever the showman, he used two wheelbarrows filled with apples to dramatize the effect, which he admitted won't change Apple's actual cash flow, or even its long-term earnings potential.
Bajarin only wondered if there was a flip side to this move. "What's the counter argument? What does that mean when you can't book that realized revenue in a more consistent basis throughout the year? Still, I would have to think they have a reason to do it," he said.
What it will do is close the huge difference between GAAP and non-GAAP earnings. In the company's most recent quarter, for example, it reported GAAP earnings of $1.35 per share. Non-GAAP earnings, the earnings it would have reported if it realized the revenue of iPhone sales at the time of sale, was $2.14 a share 58.5 percent higher.
Also on Tuesday Needham Analyst Charlie Wolf raised his price target for Apple from $200 to $235. Not as dramatic as Cramer but still a good boost. Wolf cited improving prospects for the firm's iPhone driven by the "explosive growth of the iTunes App Store."