Apple Shares Take a Wild Ride as Analysts Recalibrate

There was plenty to chew on for bulls and bears both in Apple’s Tuesday earnings report, and the company’s stock has been more than a little mercurial as a result.

Plans to substantially increase its dividend and share buybacks, an 18 percent drop in net income for the March quarter, flaccid guidance for the June quarter, the promise of “amazing new hardware, software and services” come fall — all these things buffeted Apple’s stock on Wednesday. The company’s shares slipped 2 percent early in the day, but by afternoon they’d recovered their losses. The stock closed down very slightly at $405.46.

We’re likely to see similarly erratic moves today as investors continue to digest Apple’s quarterly reality check. More than 20 brokerages cut their price targets on the company’s stock following the report, slashing them by about 12 percent on average, according to Thomson Reuters. The current range: $400 to $880.

That pretty much says it all.

Analyst reactions are all over the map. For every one that’s praising Apple for its remarkably large capital allocation program, there’s another saying the company is doling out $100 billion to shareholders because it doesn’t have any better ideas about what to do with the cash. Another big point of contention: CEO Tim Cook’s remarks about fall product updates and the new product categories Apple is considering.

Cook’s implication that Apple might not uncrate a new iPad or iPhone until September was met with quite a bit of disappointment — particularly from those who had been expecting a new iPhone this summer. As one large Apple shareholder said, “Great, five more down months. What’d you have to go and say that for, Tim?”

Okay, point taken. That’s an understandable sentiment if you’re an Apple shareholder who has watched the company’s stock price fall from over $700 to below $400 since September. But if you take a pragmatic view of Cook’s remark, it makes perfect sense.

Think about it. The volatility around Apple’s share price is unlikely to subside until it’s clear that the company’s next product cycle is well under way. If investors were expecting new hardware from Apple this summer, but the company wasn’t planning to ship anything new until fall, it was looking at a nightmarish five-month stretch of rumors and doomsaying playing hell with its share price. Given that situation, it was essential that Cook reset expectations.

If Cook’s remarks are on the level, Apple may well be headed for the challenging September quarter that analysts are now predicting. But it won’t be nearly as challenging a period as it might have been had he allowed anticipation for a summer iPhone launch to build. So Cook has given Apple some breathing room, something that will likely come in handy as it buckles down on those “exciting new product categories” he hinted at.