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What Happened to Unstoppable Samsung?

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Shares of South Korean consumer electronics giant Samsung (Korea Stock Exchange: 593-KR)fell almost 4 percent on Friday as the company's second quarter earnings estimate, though at a record high, did not meet analysts' expectations.

In its pre-earnings guidance on Friday, the company said it expects operating profit to have risen 47 percent in April-June from a year earlier to a record 9.5 trillion won ($8.3 billion), but this was lower than analysts' forecasts for a rise to 10.16 trillion won.

This miss in earnings forecast, according to analysts, is due to narrowing profit margins as Samsung ramps its low-end smartphone business to increase its foothold in emerging markets. However, they remain upbeat on the outlook for the world's largest smartphone maker given robust overall smartphone sales volumes and its diversified business portfolio.

(Read More: Samsung Estimates Q2 Record Profit, Misses Forecast )

"As the industry goes towards more lower-end smart phones and lower price points...I'm not particularly worried," said Mark Newman, senior research analyst at research firm Sanford Bernstein.

"I think the smartphone margins are coming down a little bit, but the main point is volumes are far offsetting that, and so operating profit is still growing. Concerns are well over done right now," he said.

Sacrificing short-term margins for long-term growth is the only way to survive and the obvious choice for Samsung, Newman added.

(Read More: Are Markets Pricing in Hard Landing for Smartphones? )

James Rooney, chairman of Advanced Capital Partners says while smartphones do generate a large part of operating profit for Samsung at present, it has a diversified product base, including a successful semiconductor business.

Rising memory chip prices are expected to boost earnings for Samsung's semiconductor segment and drive the next leg of the company's profit growth, according to Sanford Bernstein.

In addition, Samsung is continuing to build its strength through the acquisition of related businesses, he added, which will be positive for the company's growth.

A Buy

Yet, Samsung's recent share price performance is beginning to resemble that of embattled Apple's. Year-to-date, Samsung shares have plunged almost 17 percent this year, close to Apple's 21 percent fall, hit by concerns over declining sales of its latest Galaxy 4 smartphone and lower profit margins.

Discussing the dismal performance of the company's stock in recent weeks, Rooney says it is merely a correction and does not represent a longer-term trend for the shares.

(Read More: Samsung Analysts Ask Hard Questions as S4 Marketing Charm Wears Off )

"The stock price was overbought and expectations were higher than were realistic, so I view this as a market correction," said Rooney.

Given the recent share price declines, Newman said this provides an "extremely attractive" entry point for investors. His 12-month target price for the company is 2.5 million won - 97 percent higher than current levels.

"We see Samsung as the best positioned to gain share in premium and low-end smartphones plus maintain share in the mid-end due to its hardware lead, cost competitiveness, broad product portfolio and distribution in all regions of the world," Newman said.

(Read More: Why Samsung Shares Are Headed for Another Bumper Year )

Sanford Bernstein's target price for the stock, however, is considerably higher compared to other financial institutions.

U.S. investment bank Goldman Sachs (GS), for example, last month downgraded its 12-month target for the stock to 1.8 million from an earlier 1.9 million, while JPMorgan reduced its target to 1.9 million from 2.1 million.

-By CNBC's Ansuya Harjani

More From CNBC

  • Samsung Estimates Record Profit, Misses Forecast

  • Are Markets Pricing In Hard Landing for Smartphones?

  • Did Analysts Fall Under Samsung's Marketing Spell?

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