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Rescue Rangers Scramble: Goldman Rushes To Prevent Mass Exodus From Conviction List Hotel Applecornia, Says To BTFD

Courtesy of Tyler Durden

Ta-tata-daaaaa: Captain Goldmanerica is here to save the day. Can’t have 190 hedge funds checking out from hotel Applecornia, now can we.

From Goldman’s Bill Shope, CFA though we are not sure what the F stands for… certainly not Facebook after today…

What’s changed

On Monday morning, Apple released an internal email from Steve Jobs where he noted that the board had granted him medical leave from the company to focus on his health. Mr. Jobs will remain CEO and he will continue to be involved in major strategic decisions for the company. He also noted he hopes to be back at Apple full time as soon as possible. Meanwhile, Tim Cook, Apple’s Chief Operating Officer, will be responsible for day to day management of the company in Mr. Jobs’ absence.

Implications

While the stock is likely to face near-term pressure, we believe the longterm fundamentals remain intact and we would reiterate our Conviction Buy on any weakness. This is based on the following key points we detail in this note: 1) The management team remains strong, and we believe investors would embrace Tim Cook in any potential succession plan; 2) Apple’s $51 billion in cash and investments could be partially distributed to shareholders to stabilize the shares; 3) The multiple of 15.1X already represents a significant historical discount, and we see no direct risk to earnings from this move. As a result, we are reiterating our CL-Buy on Apple and our 12-month target price of $430.

Valuation

Our target price represents a 19X P/E multiple on our above-consensus CY2010 EPS estimate or a 19% discount to Apple’ five-year average multiple of 23X.

Key risks

The key risks to our target include: macro deterioration, increased platform competition, potential legal and regulatory restrictions, and uncertain management succession plans.


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