Analysts are placing votes in favor of Apple Inc. (NASDAQ:AAPL), charging a great deal of hope riding on the iPhone X launch. The BlueFin team argues that iPhone units should surge forward on back of the iPhone X release, calling for long-term growth sustainability while Bernstein remains unfazed as to challenges with iPhone sales in China, predicting the upgrade rates are about to rise back up again. Yet, Morgan Stanley conversely is hesitant on Tesla Inc (NASDAQ:TSLA) despite high Model 3 expectations from loyal Tesla investors, wondering whether CEO Elon Musk’s brainchild truly has what it takes to oust the likes of Apple and Amazon from the top of the leaderboard. Let’s explore:
All Eyes Look to the Apple iPhone X for Sustained Growth
Analysts are coming out swinging the bat for Apple to hit a home run with its iPhone X, casting bullish perspectives on back of an exciting OLED design upgrade, anticipating the stock is a wise investment for the long-term.
Independent equity boutique research house BlueFin analyst John Donovan is chiming in with a positive take on Apple after glimpsing “supply chain” data that supports a rise in iPhone X-centric production and manufacturing ahead, tracking a boost in build projections for the forthcoming years.
The quick-paced iPhone production growth won’t escalate immediately, however, as the Donovan predicts, “Our ongoing reads reinforce our earlier view that AAPL will offer only minimal units of the iPhone X at launch with improved availability in October,” forecasting 13 million in iPhone X builds through the month of September, which denotes a 5 million cut from the analysts’ prior expectations. Yet, once the buzzed-about 10th anniversary edition of the iPhone launches in the fall, Donovan angles for over 50% of total iPhone production to be dedicated to the iPhone X through the middle of 2018, which is “welcome news” for Apple’s iPhone pricing. And “the possibility of sustained growth.”
Seeing a solid pathway for growth prospects, Donovan highlights, “The rationale behind this is that the step up to the new OLED design will filter across all offerings in future generation phones and with an installed base hurtling towards 750M in the coming year. Additionally, as many as 300M of those phones by mid-2018 will be over 2 years old and should provide fertile ground for continued growth.”
Not concerned about potential component order delays, the Donovan believes, “We continue to see the iPhone X as the only OLED phone at launch, although we believe there is potential for a mid-cycle refresh that could expand OLED into additional models sometime in 2018. Importantly, we have yet to see any meaningful cancellation or even push-out of orders despite the reduced iPhone X projections, as it appears AAPL and the contract manufacturers are content to get in as many parts as possible as early as possible in order to satisfy what appears to be an insatiable demand for the OLED phone(s).
Bernstein analyst Toni Sacconaghi meanwhile looks at the China piece of the tech giant puzzle, acknowledging that while there are concerns regarding dipping sales for five consecutive quarters, this “weakness” boils down to either a “structural” challenge or a brief “pause in purchases” to be improved once the iPhone X launch circulates. Confident on the giant’s long-term strength, the analyst reiterates an Outperform rating on shares of AAPL without listing a price target. In fact, the analyst believes the rate for upgrades from iPhone users will rise from 27% to 34% when glancing at the upcoming four quarters ahead.
True, bearish investors will argue, “During Apple’s Q2 17 earnings call, Tim Cook stated his belief that China weakness was due to pauses leading up to the anticipated iPhone 8 launch. Our global installed base model also suggests that upgrade rates have slowed overall for Apple, and we note that Apple’s iPhone seasonality has been more pronounced in China than in others regions of the world,” acknowledges the analyst.
Yet, Sacconaghi rests his argument with the bulls, underscoring that CEO Tim Cook pointed out that iPhone 7-Plus unit sales in the fiscal first half of this year proved to outclass the 6S-Plus in the first half of fiscal 2016 as well as the 6-Plus in the first half of fiscal 2015. Overall, “This data suggests that the Chinese were quicker to upgrade on better functionality or an upgraded design (i.e., the camera) than the largely unchanged iPhone 7. We see iPhone 8’s expected form factor change as being particularly attractive to Chinese consumers. Apple itself is the largest driver of >$500 smartphone growth in China, accounting for the majority of the >$500 ASP market. In fact, the >$500 ASP market declined in each of the past 5 quarters in China – we believe due to a decline in iPhone sales. In essence, the strength of iPhone dictates the strength of the overall high-end market,” contends Sacconaghi.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Toni Sacconaghi is ranked #188 out of 4,567 analysts. Sacconaghi has a 68% success rate and realizes 20.9% in his annual returns. When recommending AAPL, Sacconaghi garners 27.5% in average profits on the stock.
TipRanks analytics show AAPL as a Strong Buy. Out of 31 analysts polled by TipRanks in the last 3 months, 26 are bullish on Apple stock while 5 remain sidelined. With a return potential of nearly 14%, the stock’s consensus target price stands at $165.48.
Should Investors Put Fresh Cash in Capital-Guzzling Tesla?
Morgan Stanley analyst Adam Jonas questions the hyped mass-market Model 3, believing investor expectations for the electric car giant’s shares to skyrocket past the likes of heavyweight rivals Apple and Amazon are overshot. As such, the analyst declares, “it’s not so much about the Model 3 anymore,” reiterating an Equal Weight rating on shares of TSLA with a $305 price target, which represents a 16% downside from where the stock is currently trading.
Musk has divulged on plans to bring a Tesla Network to the table, a ride-sharing platform that would be a smart monetization strategy for the company’s self-driving technology. Yet, Jonas is critical from the sidelines, noting these plans were first mentioned over a year ago, and in the span of the year, not much has come to pass. It is a “quiet period” that the analyst contends has a time limit, noting that the longer it takes for Musk to spring these ideas into motion, the more skeptical Jonas becomes.
What of investors who are clamoring for the Model 3 to not only have a timely launch, but be a commercial hit from the start? Jonas notes, “While we don’t want to underestimate the potential impact on sentiment if the Model 3 meets such expectations, we believe that for an investor to put fresh money into a name that consumes so much capital at a $60bn valuation, he or she must reasonably consider what fundamental drivers could drive a potential doubling or even a tripling of the market value over the medium term.”
Squaring away TSLA enthusiasts who see the “next ‘Amazon'” or Apple,” the analyst ultimately is left with questions, concluding, “Could a highly successful Model 3 and its progeny achieve this? In our view, no. Could an electric, autonomous semi truck achieve this? We don’t think so. Solar roofs… or Tesla Powerwalls? Not big enough. In our view, there’s only one market big enough to propel the stock’s value to the levels of Elon Musk’s aspirations: that of miles, data and content. When does Tesla make the leap to mobility.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Adam Jonas is ranked #452 out of 4,567 analysts. Jonas has a 54% success rate and earns 11.7% in his yearly returns. When recommending TSLA, Jonas yields 31.1% in average profits on the stock.
TipRanks analytics indicate TSLA as a Hold. Based on 19 analysts polled by TipRanks in the last 3 months, 6 rate a Buy on Tesla stock, 7 maintain a Hold, while 6 issue a Sell on the stock. The 12-month average price target stands at $285.27, marking a nearly 21% loss from where the stock is currently trading.