It would be hard to exaggerate Gene Munster’s celebrity as an Apple stock bull.
Last year Bloomberg Businessweek concluded that the Piper Jaffray & Co. analyst was quoted in the media an average of twice a day, and critics suggest that it’s really not safe to stand between him and a TV camera.
So the slide in Apple from its peak of about $705 per share last fall to less than $400 this month hasn’t been that much fun for Munster, who’s take on the stock stayed positive the whole ride down. Not that I saw any strain on his face or in his body language when we spoke the other day at Piper’s headquarters in Minneapolis.
He said he’s sleeping just fine, and always has. “I guess I must be in the right business,” he said.
It’s not that he’s indifferent to being wrong — in the short term, he might add — but that he’s an analyst. He’s had favorite stocks decline before. His conclusions were and are based on his and his team’s spadework, what he called “real research.” No sense getting emotional.
Said Munster: “The question we keep asking ourselves is this, regardless of what’s happened in the stock over the last year or five years: Is it a good investment today?” His answer is decidedly yes.
Munster’s history with Apple began in 2004, when he and some colleagues were looking into opportunities coming from the change underway in how consumers enjoyed their music. Apple had by then rolled out its first few iPods and opened its iTunes Store for music downloads. There was a convergence happening, as music and entertainment were coming together with computers.
It wasn’t Munster’s first report on Apple in April 2004 that will be in the investment research Hall of Fame, as that had a neutral rating. It’s the one from June 28, 2004, the upgrade to buy at a split-adjusted price of $16.85 per share.
The character Gene Munster, “influential Wall Street analyst,” was born in November of that year. The Christmas selling season of 2004 was getting underway and iPod sales were exploding. Munster decided to raise his target price on Apple to the pre-split price of $100.
That idea didn’t sell right away even within Piper, Munster said: analysts since the spectacular crash of dot-com stocks had assiduously avoided putting out eye-popping target prices. But the gutsy call by Munster was issued, and Apple’s stock finished up 11 percent for the day.
In the past few years, as Apple rolled out winning product after winning product and its revenue and profitability soared, Munster kept raising his target price for the stock.
The capstone was a year ago, in a note that ran with the title “Why We Believe Apple Will Be The World’s First Trillion-Dollar Company.” The stock was trading at $618.63, and Munster took his target price up from $718 to $910 per share.
In looking back at what he missed, he started with acknowledging that he overestimated the iPhone’s appeal in emerging markets. Here and in Western Europe consumers will pay $400 for a premium smartphone, but they are not so willing to do that in other countries. No excuses, he said, “when we are wrong I feel it, and I take ownership of it.”
He started paring back his target price in October, and he has reduced his estimates of sales and earnings, too. He has taken down his estimate of fiscal year 2013 earnings per share from $48.90 at the time of his trillion-dollar company note to $38.81 now.
Meanwhile, the air completely leaked out of the balloon. From its peak of $705.07 in September, the stock was back under $600 by the end of October and under $400 earlier this month. Billions of dollars of wealth evaporated.
With Apple’s stock well off its high, Munster said, he remains as busy as ever meeting with investors. It’s one of the realities of the profession that you can be wrong on the stock recommendation and still be much in demand for what you know. Even if invited to talk about other stocks, he said, the conversation invariably gets around to Apple.
He acknowledged that there can be a strikingly different tone now, what he described as “let’s see who can say the most negative things about Apple in the shortest amount of time.” He shrugs that off as part of the job, and he has no complaints for how professional investors have treated him.
Munster said he tries to ignore any noise and keep working on research. He works with a team of analysts, one of them being a data analyst. It’s why he knew there were five times more positive tweets after the newest iPhone came out than what followed the rollout of rival Samsung’s latest Galaxy product.
They meet with Apple component suppliers and Apple competitors, which is how he first learned of a potential Apple TV. They routinely survey customers, including asking questions of 5,600 teenagers. Munster said his friends call him “the Riddler,” for his persistent questions.
He takes the calls of news reporters in part to find out what they are hearing about Apple, and he learned by asking that Apple has 100 percent of the teen smartphone market in my household.
Sure, there are issues in Apple’s business, he said, but it’s also the company in what he called “the pole position” in a global industry that could have decades of growth ahead of it.
His target price on Apple is now $688 per share, a big move from the current price but just 14 times his estimate of calendar year 2014 earnings per share of $49.13. That’s only a bit higher than the multiple of estimated 2014 earnings for the S&P 500.
“It’s kind of beyond logic, it’s so low,” he said of Apple’s stock price (it gained 2.2 percent Friday, closing at $417.20.) “It is not about the multiple relative to growth rate. It’s about investor psychology right now, and I’m not a psychologist. I’m an analyst.”