On October 3, the shares of Apple Inc.
) dropped below the $100 mark for the first time since May 2007. In fact, the stock dropped last Friday to a new 52-week low of $85, representing a 19-month nadir for the iPhone parent. Today, this price plunge served as the catalyst for a valuation-based upgrade from Bernstein.
In a note to clients, Bernstein boosted its rating on AAPL from Market Perform to Outperform, and said that its "longer-term growth story remains intact." Analyst A.M. Sacconaghi added, "Investors appear to be valuing Apple on an earnings multiple, rather than on cash flow, which fundamentally undervalues the company given the huge deferred revenue growth associated with the iPhone."
Specifically, the brokerage firm estimates that the iPhone itself could add between $2.25 and $3.40 per share to cash flow above earnings in fiscal 2009.
However, following the stock's recent free-fall down the charts, Bernstein was forced to trim its price target on AAPL from $175 to $135. Credit Suisse followed suit, slashing its price target on the equity from $200 to $135. Despite today's gain of about 7% amid a massive rally in U.S. stocks, Apple shares could be vulnerable to more price-target cuts during the near term. Thomson Financial pegs the average 12-month price target at $176.33, a lofty premium of 82% to Friday's close at $96.80.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.