Earnings Preview: UBS Analysts Discuss Tech Titans Apple Inc. (AAPL) and Microsoft Corporation (MSFT)


Analysts from UBS provided insight on Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) amid earnings season. Below, the analysts explain why Apple is set for good shape long-term despite rebounding from the weak half of earnings season, and how Microsoft is showing promise with its new products.

Apple Inc.

Analyst Steven Milunovich of UBS gave his update on Apple ahead of earnings season. Apple is currently in the weakest part of its earnings year, so the analyst warns investors not to expect positive catalysts.

Polling 500 buyers in the United States, the quarterly CIRP survey showed that 16% of U.S. iPhone Sales were SEs, which was stronger than expected. Additionally, the survey showed that the average storage per phone was down 10% YoY, which means bad news for the company’s profit goals. Milunovich also notes from the quarterly survey: a decline in sales to customers switching to Android; an increase from 8% to 13% in buyers who had iPhones for three years or more; and a solid percentage- 35% of sales of iPad purchases- attributed to the iPad Pro, a product that could be crucial in helping improve the average selling price of the iPad.

Milunovich does not anticipate too many positive developments emerging from Apple’s earnings this quarters, aside from solid Services growth and slight improvement in its China market. Regardless, the analyst expresses his belief that Apple’s “ecosystem is strong.” It only is a matter of when customers will upgrade their iPhones- not if, in Milunovich’s eyes.

The analyst believes the long-term growth for Apple looks even more encouraging following its upgraded watchOS for the “nascent wearables market.” Meanwhile, Milunovich asserts that “opening up Siri, Maps, and Messages for developers was critical to counter the rise of chatbots and enhance the platform.” Milunovich’s revenue estimate is $41.6 billion- just under the Street’s guidance of $42.2 billion- with an EPS estimate of $1.40 aligned with the Street. It is Milunovich’s strong belief that “iPhone sales will  stabilize in F17 and grow 15% in F18 on a strong upgrade cycle, justifying a higher multiple.”

The analyst maintained his Buy rating with a price target of $115, marking a 15% increase from current levels. According to TipRanks, the analyst has a yearly average return of 1.1% and a 48% success rate. The analyst has a 0% average return when recommending Apple, and is ranked #1,581 out of 4,057 analysts.

TipRanks shows that out of the 39 analysts who rated Apple in the last 3 months, 85% gave a Buy rating, 13% gave a Hold rating and 2% gave a Sell rating. The average 12-month price target for the stock is $123.76, marking a 23.92% upside from current levels.

Microsoft Corporation

Analyst Brent Thill of UBS gave his take on Microsoft following a recent call he had with Mary Jo Foley, an expert on Microsoft who has covered the company over the span of the past two decades. The purpose of the call was to recap last week’s WW Partner Conference as well as to provide an overall update on the company.

What emerged from the conference, and consequently, the catch-up call was news of a fresh focus on Dynamics: Microsoft’s enterprise resource planning (ERP) and customer relationship management (CRM) software application. Microsoft is planning a fall, 2017 release for Dynamics 365 cloud bundle; software built on Azure with a greater business-minded user appeal. This is all part of a new initiative for Windows 10 to enterprise.

Microsoft also recently announced an E3 subscription plan for Windows 10 for $84/year with an even more advanced E5 subscription currently in development. With regard to new product, Flow, an event automation service, Thill could see potential for overlap with NOW as Microsoft tries to integrate Flow into its already circulating product line.

The key downside from the conference was Microsoft’s delayed release of Azure Stack, Microsoft’s on-prem version of Azure, until the middle of 2017. Additionally, Microsoft called off its objective for Azure to run on pre-existing hardware out of concerns ultimately regarding performance. Instead, MSFT is now working with outside companies, including Hewlett-Packard, Dell, and Lonovo to create “integrated systems for Azure Stack deployments.”

Thill believes that Microsoft has been operating under the right plan of action to ensure long-term success, but for the short-term does not expect any major increases in the stock price.

The analyst maintained his Buy rating with a price target of $59, marking an 11% increase from current levels. As usual, we like to give the analyst’s track record when reporting on new analyst notes to give a perspective it has on the stock performance. According to TipRanks, the analyst has a yearly average return of 11% and a 69% success rate. The analyst has a 12.8% average return when recommending MSFT, and is ranked #70 out of 4,057 analysts.

TipRanks shows that out of the 26 analysts who rated Microsoft in the last 3 months, 65% gave a Buy rating, 27% gave a Hold rating and 8% gave a Sell rating. The average 12-month price target for the stock is $57.80, marking an 8.87% upside from current levels.