If History Repeats, Apple Shares Will Rebound Strongly in Steve Jobs's Absence
Apple CEO Steve Jobs's announcement that he's taking a medical leave
sent the company's shares down in premarket trading Tuesday as expected, but if history serves as any guide, Apple investors may find the stock price doing well in his absence -- providing they can handle the pain of the drop long enough to enjoy the recovery.
That pain may take the form of a 15% decline to $300 a share, says Brian Marshall, an analyst at Gleacher & Co. Apple's shares appear headed down that path, falling 5% to $331.11 a share in premarket trading.
But historically, Apple's (AAPL) share price has recovered and excelled during Jobs's medical leaves of absence. And Apple's fiscal first-quarter earnings report, due after the markets close this afternoon, may soften the impact of the iconic CEO's health worries for shareholders.
The Fall and Rise of Apple Shares
Apple investors have experienced a Jobs medical leave two times in the past seven years. On Aug. 1, 2004, he announced he was planning to receive treatments for pancreatic cancer, and that Tim Cook, vice president of sales and operations at that time, would lead the company in his absence. Apple's stock fell 2.4% to $15.79 that day. But the stock soon reversed its fall, and by the end of the two-month period closed up 22.7%, or $19.34 a share. Its index, Nasdaq rose a mere 0.25% to 1,896.8 during that time.
On Jan. 5, 2009, Jobs again announced he planned to take a medical leave, saying he expected to return in the spring. That news sent Apple shares down 4.2% to $94.58. Shortly afterward, Jobs issued an update that his return would take six months, and Apple fell 2.3% to $83.38 a share that day. But by the end of the six-month period, Apple shares were up 47.8% from their Jan. 5 levels to $142.43, while Nasdaq made a more modest gain of 12.6% to 1,835.04.
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"We've seen weakness [in the share price] for the last two medical warnings," Marshall says. "The last one he issued, I raised my recommendation to a buy from neutral, and it proved to be one of the best moves out there. The stock was trading at around $80 a share then."
The most recent medical advisory, though, differs significantly from his previous ones: It provided no details about Jobs's condition, nor did it offer an estimate of when he expects to be back at work. Marshall says he gives Jobs a 50-50 chance of returning to Apple's executive suite.
"Obviously, this is a terrible thing for Steve personally, and the market reaction won't be kind either," Marshall says.
Coming Soon: Verizon iPhones and Upgraded iPads
Apple investors, however, may take comfort in the company's earnings, especially if they provide a bullish outlook going forward. The computer maker is expected to post a 46% jump in quarterly profits -- to $5.35 in earnings per share on revenues of $24.3 billion, which are expected to be 55% higher than year-ago figures, according to Thomson Reuters.
And going forward, Apple has its Verizon (VZ) iPhone deal lined up to take off on Feb. 10, which Wall Street expects to yield millions of new iPhone sales, plus an expected iPad refresh in the works. But spearheading those sales will be Tim Cook, who was promoted to chief operating officer in 2005 and has been Jobs's go-to guy during previous medical leaves.
"While Steve is a visionary, have no concerns Tim Cook can lead the troops," Marshall says. " Tim doesn't have vision like Steve, but Apple has others, like Jonathan Ive, who heads up their industrial design. He has vision." The question is: Will investors also have the vision to stick with Apple again?
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