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The First Analyst To Become Negative On Apple Now Thinks The Stock Is A Buy

Tim Cook
AP

BTIG analyst Walter Piecyk was one of the first people to turn bearish on Apple.

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This morning he's turning bullish. He's upgrading the stock to a "buy" and giving it a 12-month price target of $540. It closed at $428.35 yesterday.

Piecyk says he believes Apple will have EPS growth in 2014. This year EPS will be flat, or even possibly down.

He bases the potential growth on four factors: Apple will release a cheaper iPhone, carrier upgrade policies will make it easier for users to buy new iPhones, a new product will come out, and Apple will do something with its cash.

However, he also warns that Apple could miss analysts expectations this quarter, and might even miss its own guidance. That could crater the stock below $400 a share. But after that, he sees things smoothing out and improving for Apple.

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In April of last year he predicted Apple was going to have a bad fiscal third quarter with revenue missing expectations on light iPhone sales.

He rated the stock "neutral."

He was right: iPhone sales were light and revenue missed. Apple's stock still rose after that miss, but it peaked and has fallen 40 percent since.

While Apple's stock has fallen, other analysts have rushed to downgrade the stock and slash their price targets. Piecyk thinks now is the time to buy.

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Here are the bullet points of Piecyk's buy call:

  • Users are going to be able to once again upgrade to new iPhones in the coming year. Piecyk's thesis for the downgrade was the carriers' were making their upgrade policies more strict. As a result, Apple wouldn't be able to sell as many iPhones to existing iPhone owners. The flipside of that thesis is that Apple will be able to sell more iPhone 5Ss, or iPhone 6s depending on the timing of those products.
  • He believes Apple will do a cheaper iPhone because, "we believe a product that addresses the more than 70 percent of global wireless subscribers that are un subsidized pre-paid is necessary in order for Apple to grow its EPS next year. This is not rocket science and our belief is based on basic logic not questionable 'channel checks' or trips to Asia."
  • He's also giving Apple's management the benefit of the doubt and assuming it will release a new product in the next twelve months that generates $5 billion in revenue. He admits this is a little crazy: "Bears will note the absurdity of assuming that any company can simply come up with a $5 billion product while Bulls will call it an overly conservative rounding error for a company generating $200 billion in revenue and which has beaten consensus revenue estimates by billions of dollars in recent years. Both arguments are valid and the harsh criticisms will be merited."
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  • Apple will do something with its cash ... or else. Piecyk says Apple will likely announce a dividend or buyback plan by the end of the month. It will have ~$144 billion in cash at the end of March. If Apple doesn't do something with it, then investors will see management as incompetent and think it can't do the rational thing.
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