Credit Suisse have addressed five recurring concerns that have been troubling the investors of Apple (NASDAQ:AAPL).
We conclude that short-term issues (primarily concerns over weak iPad units) will attenuate in coming quarters and long term concerns fade as upcoming catalysts and results demonstrate the strength of the company's opportunity and business model, analyst K.Garcha wrote in a note to clients.
The analyst has an outperform rating and $500 price target on Apple stock.
* Concern 1: Does the iPad have a demand issue?
The analyst doesn't think so. The company has highlighted that iPad has seen 'mother of all backlogs' and seems to be promising substantial volume growth near term. Longer term, the analyst expects the tablet market would rise to 300 million units and Apple can retain 50 percent market share at least.
* Concern 2: Are iPhone volumes reaching saturation?
Garcha said even with the existing high-end focus, Apple can see smartphone volumes rise to 85 million units in calendar 2011, driven by smartphone segment growth of 52 percent, additional carrier expansion in both North America and globally (CDMA carriers) and share gains at existing customers (e.g. Telefonica).
* Concern 3: Is Apple too big and aren't shares over-owned?
Despite reaching 2.6 percent of S&P, the analyst says this should not be a barrier for outperformance (the 5 percent level has been more of a ceiling). Compared with companies that have reached similar levels of the S&P, Apple's price to earnings ratio is 50 percent lower. In addition, Apple's current strategy simultaneously addresses several areas of consumer spend (telecoms, PCs and CE), making its opportunity set unique and significant.
* Concern 4: What about Steve Jobs' health?
While this is a valid concern in the long term, Garcha believes Apple's deep bench has shown robust execution and can continue to leverage the current business model/portfolio to add $10 of extra EPS per year longer term, through launch of a low-end iPhone, a greater push towards EM distribution and a more concerted corporate push.
* Concern 5: What about the cash pile?
We don't believe that M&A or organic requirements are that sizeable versus the cash pile, hence we demonstrate that the company could institute a 5 percent yielding dividend and even in a conservative EPS scenario, could still have around $100 billion in net cash five years from now, Garcha wrote.