Apple will announce its fourth fiscal quarter results on Tuesday, October 27 after market close. Analyst Jeff Kvaal of Nomura Securities weighed in on the stock ahead of earnings, reiterating a Buy rating with a price target of $145.
All eyes will be on iPhone performance in the coming earnings report. Kvaal commented that “steady – at least – global iPhone demand heading into the key December quarter should be sufficient, given modest investor expectations.” The analyst anticipates iPhone volumes of 47.5 million (in-line with consensus and Apple’s guidance). He notes, “Apple’s unit volumes are likely to be at least flat YoY and likely up modest.” He states that continued strength in the Chinese handset market and negative news flow from the component community to be a positive factor.
Kvaal further added, “We also believe Apple is well positioned to be a strong 2016 story,” explaining that iPhone volumes have significant room to exceed the consensus of FY16 estimates (250 million versus 236 million consenses).
The analyst’s investment thesis is based on two premises. First, Apple indicated that only 27% of its base had upgraded to a 6 series model as of last quarter, leaving plenty of room for incremental iPhone 6s volumes. Second, a lower-priced iPhone 6 at $549 ASP will do well versus Android phablets.
Kvaal also expects modest improvements in non-phone segments to create a tailwind. He stated, “We believe consensus does not anticipate a positive impact from the iPad Pro or factor in Apple’s recent statements about the watch or its music service.”
However, the analyst also points to risks such as the structural slowdown in China, inability to further expand market shares in certain regions, and secondhand phone market that could slow Apple’s replacement cycle.
According to TipRanks, Kvall has a 53% success rate recommending stocks with a +12.1% average return per rating. Out of 36 analysts who have recently rated Apple’s stock, 27 have rated it as Buy, 8 have rated it as Hold, and 1 has rated it as Sell. The average consensus price target for the stock is $145.45, an upside of 22.14% over current levels.
PayPal Holdings, Inc.
PayPal is expected to report 3Q15 earnings on Wednesday, October 28 after market close. This will be PayPal’s first earnings call as an independent company post spin-off from eBay earlier this year. Ahead of the announcement, analyst Bill Carcache of Nomura Securities weighed in on the stock, maintaining a Buy rating with a $46 price target.
The analyst said, “We expect the quarter to be quite volatile given the number of differing opinions around the Stock.” Carcache further added, “Looking ahead, we expect the tug-of-war between the bears and the bulls to continue as the market attempts to calibrate the right valuation multiple for PYPL.” PayPal’s shares are now trading at a relative discount to MA/V versus a premium at the time of spin-off.
EBay reported 3Q15 results ahead of PYPL on October 21, and the read-across suggests that PayPal’s on-eBay growth should also come in relatively stable versus 2Q15. Carcache is looking for EPS of $0.28, slightly below consensus of $0.29 on modestly slower revenue growth. The analyst also expects the FX headwinds continued in 3Q15.
The analyst also points to several risks, including increasing competition from Apple Pay, Android Pay, and other digital payment solutions; growth deceleration due to competition, and regulation; execution risk; potential increase in fees charged to PayPal by card companies; and inability to fund the growth of PayPal Credit.
Bill Carcache has an 80% success rate recommending stocks with a +13.8% average return per rating. While PayPal is a relatively new stock, TipRanks has data of 18 analysts who have recently rated the stock. Out of these, 11 have rated the stock as Buy, 4 have rated it as Hold, and 3 have rated it as Sell. TipRanks also has the average price target for the stock based on the ratings given by these analysts, which stands at $40.47, an upside of around 15% from current levels.