Analysts have a lot to look forward to on Wall Street in the next few days despite the short week, from Apple Inc’s (NASDAQ:AAPL) “special event,” to a quarterly earnings report from Palo Alto Networks, Inc. (NYSE:PANW), to the impact on the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) from the U.S. interest rate hike. Here is what investors should look for:
Analysts and investors alike are gearing up for Apple Inc’s highly anticipated “special event” on Wednesday, September 9. In addition to introducing the new iPhone 6s and the latest version of IOS and OSX, Wall Street also expects the company to announce a slew of surprises, including a new Apple TV.
It’s no secret that Apple’s main announcement will center on the iPhone. While investors are not expecting a drastic change in the new iPhone as this is an “S-cycle year”, the iPhone 6s is still expected to replace the iPhone 5s generation of handsets. Analysts and investors also believe the iPhone 5c will be completely phased out, which will put the iPhone 5s at the bottom on the iPhone tier; the iPhone 6 and iPhone 6 Plus in the middle; and the iPhone 6s and iPhone 6s Plus at the top. The company is also expected to announce an update on its line of iPads, but analysts have questioned whether this will happen on September 9 or in October.
Wall Street has also been stirring with speculation on the newest version of the Apple TV. Many believe the Apple TV will include enhanced capabilities for gaming, apps, and voice interactions. There is also speculation that Apple has been working on launching an online streaming service and exploring original content that could be made available in the App Store. However, some Wall Street analysts are skeptical of this idea and questioning if it can serve as a catalyst to strengthen the company’s valuation.
While Wells Fargo analyst Maynard Um believes “Apple could potentially release an updated Apple TV with streaming TV capabilities…starting in 2016 with a monthly subscription starting at $40/per month,” the analyst also believes “it is too early to tell whether it will be a catalyst to Apple’s valuation.” Um reiterated an Outperform rating on Apple on September 4 with a valuation range between $125 and $135.
Maynard Um has an overall success rate of 56% recommending stocks and a +10.2% average return per recommendation when measured over a one-year horizon and no benchmark. He has rated Apple 78 times total since 2009, earning a 76% success rate recommending the stock and a +22.5% average return per recommendation.
Similarly, Piper Jaffray’s Gene Munster, who most recently reiterated an Overweight rating on Apple with a $172 price target on August 31, believes the chances of Apple TV having a TV-streaming service are slim as the company would likely want to acquire enough content first. He noted, “We believe Apple contests that you can’t cut the cable unless you have a broader content offering. We note that while you can get the major networks with a $20 HD antenna, it’s a clumsy experience that is not ready for the masses.”
On average, Gene Munster has a 59% success rate recommending stocks and a +20.1% average return per recommendation when measured over a one-year horizon and no benchmark. He has rated Apple 148 times since 2009, earning a 67% success rate recommending the stock and a +26.1% average return per recommendation.
Out of 34 analysts polled by TipRanks who have rated Apple in the past three months, 25 analysts are bullish on the stock, 8 are neutral, and 1 is bearish. The average 12-month price target on the technology giant is $150.26, marking a 37.51% potential upside from where the stock last closed.
Palo Alto Networks, Inc.
Cyber security company Palo Alto Networks is slated to announce its fiscal fourth quarter 2015 earnings results on Wednesday, September 9, after market close. The Street expects the company to post earnings of $0.25 per share on $256.26 million in revenue, up from $0.11 earnings per share and $178.23 million in revenue year-over-year.
While revenue is expected to increase 44% year-over-year, it will mark the smallest percentage growth since Palo Alto’s IPO in December 2010. With that said, the company has beaten both earnings and revenue estimates for every quarter so far this year.
Palo Alto has done a good job marketing WildFire, a cloud-based malware analysis machine; in addition to software Traps and the next generation firewall. Additionally, the company has little exposure to China, whose economy has fallen into bearish territory. Therefore, this should not affect Palo Alto’s top-line growth through 2016.
Nomura Holdings analyst Frederick Grieb weighed in on Palo Alto Networks on September 4 heading into earnings, reiterating a Buy rating on the stock with a price target of $185. The analyst notes that Palo Alto “remains a core holding given the current customer focus on cyber security, as well as the company’s strong technology and market share gains.”
Frederick Grieb has an overall success rate of 79% recommending stocks and a +30.8% average return per recommendation when measured over a one-year horizon and no benchmark. He has rated Palo Alto 14 times total since 2012, earning an 83% success rate recommending the company and a +38.4% average return per recommendation.
Out of 10 analysts polled by TipRanks who have rated Palo Alto within the past three months, all 10 are bullish on the stock. The average 12-month price target on the company is $202.50, marking a 24.7% potential upside from where the stock last closed.
SPDR S&P 500 ETF Trust
The S&P 500 ETF has taken a big hit from the declining Chinese economy, having fallen almost 9% since its highest point in August. As many companies included in the S&P 500 do a great deal of business in China, the ETF’s valuation has dropped to 15.4 times expected earnings, compared to around 17 for much of 2015. After several attempts by the Chinese government to stop its economy from entering a recession, the Chinese markets have continued to fall.
Furthermore, there have been currency fluctuations in anticipation of a U.S. interest rate hike in addition to the recent market sell-off. The Fed has hinted at an impending hike on interest rates since the market is back to normal levels after recovering from the 2008 recession. No decision has been announced and analysts hope that discussions will take into account China’s recent market sell-off. However, rumors around impending rate hikes have led to a decrease in Wall Street’s third quarter earnings estimates. Specifically, Wall Street expects a 3.4% decline in earnings for the S&P 500 this quarter. Revenue is expected to drop by 2.8%, mostly driven by steep declines in the energy and materials sectors.