Apple Inc. (AAPL) Is Still Undervalued Ahead of FQ3 Earnings, Baidu Inc (ADR) (BIDU) on an Ad Pricing High After Stellar Q2 Print


Almost Time to Get Past Apple FQ3 Earnings: All About the iPhone X

With Apple Inc. (NASDAQ:AAPL)  fixing up to hand over its third fiscal quarter earnings tomorrow after market close, Drexel Hamilton analyst Brian White has his focus peeled to the iPhone X, ready to have the print behind the titan already.

The analyst reiterates a Buy rating on shares of AAPL with a $202 price target, which represents a close to 35% increase from where the stock is currently trading. (To watch White’s track record, click here.)

For the third fiscal quarter, the analyst is projecting the tech giant will meet his sales expectations of $45.29 billion, which would imply a 7% year-over-year rise, just ahead of the Street at $44.96 billion. Additionally, White believes Apple will fulfill his EPS expectations looking for $1.57, which align with the Street’s estimate. The analyst’s projection signifies a 14% quarterly dip, which he believes is “a bit better than the five-year average QoQ decline of 16% over past June quarters.” Additionally, White points to the giant’s third fiscal quarter guidance, which looks for sales between $43.5 and $45.5 billion as well as an implied EPS of roughly $1.53.

Regarding iPhone units, the analyst sees a 1% yearly decline and 21% quarterly pullback to 39.95 million. In terms of Mac units, the analyst projects a 2% annual climb to 4.33 million units for the third fiscal quarter. When assessing the iPad, the analyst forecasts a 20% yearly decrease to 8.0 million units. Revenue is looking strong, as White predicts an 18% annual surge to $7.04 billion. Meanwhile, “We believe sales in Greater China (20% of 2Q:FY17 sales) will fall by 15-20% YoY in 3Q:FY17 but the sales cycle could turn positive on a quarterly basis in H1:FY18,” adds the analyst.

White contends, “Apple is currently in the seasonal doldrums for the iPhone as the June quarter has historically marked the revenue low point of the year; however, the ramp schedule of the iPhone 8 will dictate if the September quarter could mark the trough this year. During our China Tech Tour in April, we highlighted our concern that the 5.8-inch OLED iPhone 8 could be delayed by several weeks and this view has gained momentum from Wall Street over the past couple of months.”

At this point, it is not about earnings for White, as he is “Just Looking to Get 3Q Over With and Focus on New iPhone Cycle.” Apple continues to be from the analyst’s vantage point a global lotto win that is massively undervalued.

TipRanks analytics demonstrate AAPL as a Buy. Out of 34 analysts polled by TipRanks in the last 3 months, 26 are bullish on Apple stock while 8 remain sidelined. With a return potential of nearly 11%, the stock’s consensus target price stands at $165.85.

Baidu Gets a Price Target Lift

Baidu Inc (ADR) (NASDAQ:BIDU) posted its second-quarter financial results last Thursday, leaving Oppenheimer analyst Jason Helfstein pleasantly surprised with the Chinese online giant’s irons in the fire.

On the heels of the print, the analyst reiterates an Outperform rating on BIDU while hiking the price target to $250, which represents a close to 14% increase from where the shares last closed. (To watch Helfstein’s track record, click here.)

For the second quarter, Baidu brought in advertiser count 9% underneath Opco, with pricing 13% ahead. Gross revenue beat consensus by 1% on back of the strength of pricing. Gross profit outperformed Opco by 13% and was over the Street by 9%. Gross margin likewise outclassed the Street, with SG&A 4% under, signifying a 30% year-over-year decline thanks to lesser in-period promotional spend. Tax rate fell from 19% last quarter and 25% this time last year to 11%, benefiting from one-time beneficial subsidiary tax treatment.

Revenue outlook for the third quarter beat consensus by 2%, with Helfstein noting, “TAC leverage expected for FY17, with SG&A remaining at lower levels. R&D should return to 1Q rate. Content expenses still expected to double for FY17(in COGS). Advertiser count comps become easier in 2H, as ‘clean-up’ began in May 2016.”

Additionally, the analyst points to business performance, highlighting, “News Feed showing strong monetization off low base, with revenue doubling between March & June.”

Ultimately with news feed strength and artificial intelligence (AI) optimization leading to improved ad pricing, Helfstein surmises, “While advertiser count is still constrained by the new ‘high standard’ Baidu has set for customers, News Feed has created additional ad inventory and monetization opportunities. Ad conversion rate rising on machine learning assistance. Operating income margins 580bps above the Street, with leverage in SG&A partially offset by continued investments into R&D. Mgmt seeing positive feedback on R&D-driven product initiatives, which include Duer OS’s smartphone manufacturing partnerships, AI-based Fintech services and Apollo auto partnerships. Continued signs of product momentum important given significant R&D spend.”

TipRanks analytics exhibit BIDU as a Buy. Based on 7 analysts polled by TipRanks in the last 3 months, 6 rate a Buy on Baidu stock while 1 issues a Sell. The 12-month average price target stands at $221.20, marking a just under 1% upside from where the stock is currently trading.