Apple Analyst Report Brings Some Confusion

Friday’s research report implies a price gain of more than 8% in the stock. That does not mean Merrill sees big things happening to the stock, however. The official rating is only a Neutral rating — a point that many investors interpret as sell or avoid.

In a note to investors, Merrill analyst Scott Craig sees Apple as a range-bound stock that will trade between current levels and the “upper 500s” on a near-term basis. The shares are “without growth catalysts (i.e. new product categories) and clarity of stabilizing margins,” Craig’s note said.

The estimate increase is due mostly to the fact that Apple is expected to have some 881 million shares outstanding at the end of its fiscal-second quarter in March. That would be down 2% from the current 898 million that Wall Street is using to generate earnings estimates.

So earnings will be spread across fewer shares. Craig is expecting Apple to earn $10.52 a share because of the share reduction, up from a prior estimate of $10.16 to $10.35. Full-year earnings should rise to $42.35 a share from an earlier estimate of $41.91 to $41.81 a share.

Is possible that Apple will have a better-than-expected year, Craig wrote that revenue and earnings could grow if iPhone and iPad sales in China are strong, and CEO Tim Cook is finally able to bring one or more monster products to market. Meanwhile, Craig estimates that Apple has about $18 billion left on its share repurchase program and is on track to return $100 billion to shareholders by 2015.

Investors and traders alike seem confused by the note. There are positive comments and there are negative comments to absorb. Shares were down 0.45 at $542.05 in late morning trading. Apple shares have traded in a 52-week range of $385.10 to $575.14.