iPhone 4S: Apple, Despite Earnings Miss, Still Headed to $525 and Beyond in 2012 - Stock Review

Apple's stock slid after a rare earnings miss -- the company earned $7.05 per share in the fourth quarter compared to the $7.39 per share Reuters consensus estimate -- with shares plunging to about $402 from $428 -- but just look on that pull-back as an opportunity to scoop-up shares.

In other words, Apple is on sale, so now is the time to catch this train before it leaves the station: I see a $550 Apple price by mid-2012.

Just put the iPhone 4S in the category of a new sensation, and it's one that bodes well for Apple's shares, first discussed here on Sept. 25, just after the shares closed the weekend at $403.30. I'm obviously reiterating my Buy call.

The licensing of Apple's (AAPL) iPhone 4S this month, to much-maligned cellphone service provider Sprint (S), not only has the capacity to rejuvenate Sprint, but it also could spark an iPhone 4S wave in the cellphone service provider sector. Further, it appears that wave has already started: Apple may sell as many as 4 million iPhone 4S units this weekend. Talk about a busy sales staff in local cellphone subscriber stores.

In other words, a renaissance in the sector -- one that attracts new minds (translation: subscribers) that previously hadn't considered the iPhone 4S or even a smartphone, and one that bodes well for Apple's shares.

Most investors know that the past 10 years, and in particular the lost decade of 2001-2008, was difficult for investors, but there are always companies that manage to outperform competitors and shine, and the iPhone 4S-clad Apple is one of them.

Apple's shares traded Wednesday down $18.70, to $403.54.

The iPhone 4S is also the last chance to buy a product developed by the late, great innovator, Steve Jobs. Simply, he was the Thomas Edison of our age and he left this life far too soon.

iPhone 4S-Boosted Revenues

Look for Apple's fiscal 2012 revenue to surge 20 to 25 percent -- and this is after a 67 percent revenue jump in fiscal 2011, boosted by the aforementioned iPhone 4S wave, and strong unit sales of the iPad and MacBook (Apple's name for laptops).

What's more, the above-mentioned robust sales trend means iTunes revenue will also increase at an impressive rate in fiscal 2012, as Apple's hardware sales lead to more downloads of apps, music and movies.

The lone negative in Apple's line-up? The iPod, whose market share will likely decline, due to market saturation and Apple's huge market share in the sector.

The Thomson Reuters First Call FY2011/FY2012 EPS estimates for Apple are $27.70 to $32.92, respectively. That FY2011 earnings per share estimate looks about 10 percent too low, and the FY2012 EPS estimate looks about 10 to 15 percent too low, according to my analysis. Reuters also expects Apple to register fiscal 2011 revenue of $108.6 billion, and fiscal 2012 revenue of $133.2 billion

Margins should total about 40 percent in fiscal 2011 and 41 percent in fiscal 2012, as Apple ramps up iPhone and iPad production, benefits from economies of scale and eliminates inefficiencies detected in the ramping up process.

There's some concern among analysts regarding softer demand for desktops and laptops, but the iPhone 4S revenue stream will more than make up for it.

Meanwhile, Apple's cutting-edge design capabilities, product durability, marketing prowess and strong free cash flow can scare off only the lowest-risk investors.

Apple is that rare technology company you can buy for your kid's college fund and in 10 years, you'll be glad you did. That's a testament to founder Steve Jobs -- an American icon.

Technical Analysis: Technically, Apple's shares have handled the U.S. stock market's recent volatility very well. The stock cycled between $325 and $360 for much of the first half of 2011, then vectored to $400 in the summer. A roughly (and healthy) 30 percent correction followed to about $360, before the stock retook the $400 level in September. Even better, Apple's shares have been above the key 50-day moving average for about three months -- a bullish sign -- with touches of the line met with buying pressure. As of mid-October, Apple's technical data revealed that Apple's train is about set to leave the station.

Where's Apple headed? Most likely, to $450 by the end of 2011, and to $550 by mid-2012.

What's more, Apple's P/E of 15 isn't low, but it's not high either, given the company's growth rate and potential, and if institutional investors ever sense that the global financial crisis is over, Apple may be granted a higher P/E. If the latter becomes a reality, Apple will venture higher in late 2012 to $600.

Stock Category: As noted, an iPhone 4s-clad Apple is an exception to the tech sector rule that argues against adding tech stocks to your kid's college fund. Apple is battle-tested and symbolizes U.S. innovation capabilities: Its shares are headed north, assuming even sluggish 2012 U.S. GDP growth. However, consider Apple only if you have the patience to wait two years to realize a capital gain. There's also a 2 percent chance you'll lose your entire investment with Apple over a 10-year period.

2011 Outlook: I view Apple as a long-term play, but if you're looking to sell within the year, it's probably best to take your profits after it rises to between $450 and $475, if it fails to rise above $500.

Stock Analysis: Apple is a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50 percent position now; then buy another 50 percent in one month, if U.S. economic conditions don't worsen substantially. I'd put a sell/stop loss order at: $220.

- -

Disclosure: L.C. Jacobs of New York, N.Y. reviews stocks on a quarterly, semi-annual, and annual basis.

L.C. Jacobs has no positions in stocks reviewed, but does own federal, municipal, and corporate bonds.