AAPL: Apple shares drop after buyback, dividend hike plans revealed

Phil Schiller, Apple's senior vice president of worldwide

Phil Schiller, Apple's senior vice president of worldwide marketing, speaks on stage during an introduction of the new iPhone 5 in San Francisco, Sept. 12, 2012. (Credit: AP)

Shares of Apple Inc are set to open down 3 percent on Wednesday as the company's plan to return $100 billion in capital failed to appease shareholders shaken by the iPhone maker's first quarterly drop in profit in a decade.

A soft outlook from Apple for the current quarter prompted at least 17 brokerages to slash their price targets on the iPhone maker's shares by up to $180 per share.

Apple forecast revenue of $33.5 billion to $35.5 billion this quarter, lagging Wall Street's average expectations of $38.2 billion.

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Apple shares traded at $393.67 premarket.

Apple could be resetting investor expectations with its soft June quarter outlook, JP Morgan's Mark Moskowitz said. He slashed his target price on the shares to $545 from $725, reflecting the much lower revenue outlook.

Canaccord Genuity said it sees much weaker overall iPhone sales and a higher proportion of sales of lower-priced Phone 4 models.

It cut its target price on Apple shares to $560 from $600 and warned of significant market share loss at the higher end of the smartphone market ahead of the release of a new model, the iPhone 5S, in autumn.

BMO Capital Markets cut its rating on Apple's stock to "market perform" from "outperform," voicing concern that the company would have to trade off revenue growth for margins in the longer term.

Apple's gross margin was 37.5 percent in the second quarter, lagging market expectations for a 38.5 percent margin.

Seven analysts have "neutral" or equivalent ratings on Apple's stock and three have "sell" ratings. The rest of the 56 analysts covering Apple have "buy" ratings on its stock, according to StarMine data.

Apple's growth has slowed as smartphones reach saturation in the developed world and it goes head-to-head with increasingly aggressive rivals in developing countries such as China and India, where customers prefer cheaper models.

"We believe the increased competitiveness of the smartphone market is creating challenges for Apple," BMO's Keith Bachman said.

Facing stiff competition from Samsung Electronics Co Ltd and Google's Android phone system, Apple shares have almost halved from a record high of $705.07 last September.

While the valuation on Apple shares does not appear stretched, there is still a lot of risk and uncertainty around earnings, Nomura analysts said.

Apple stock is now trading at roughly 13 times estimated 2013 earnings per share. By contrast, the average price-earnings ratio for the sector is about 16.5, according to Starmine Apple also disappointed Wall Street by indicating that consumers would have to wait till the fall and 2014 for any new products.

"We had anticipated a late July to August launch of the iPhone 5S and midrange iPhone," Nomura analysts said in a note. The brokerage cut its target price to $420 from $490.

Apple relies heavily on new product launches to drive revenue growth. It refreshed its offerings in October, unveiling the 7.9-inch iPad mini and an updated full-size iPad.

Investors looking for sales and profit to start accelerating again will need to be patient, analysts at Credit Suisse said as they cut their target price on Apple shares by $75 to $600.

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