Maxim Group’s tech analyst Nehal Chokshi is out today with research notes on tech giant Apple Inc. (NASDAQ:AAPL) and enterprise infrastructure equipment maker Nutanix Inc (NASDAQ:NTNX). The analyst shares his two cents on the gross margin uncertainty surrounding the Apple’s iPhone X, while taking a deep dive into Nutanix’s opportunity in Cloud Application Lifecycle Management (CALM).
Before we start, as usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Nehal Chokshi has a yearly average return of 11.1% and a 61% success rate. Chokshi is ranked #687 out of 4657 analysts.
Based on data points that suggest significant mix shift to iPhone X, Chokshi continues to believe that gross margin will be materially higher than consensus expectations with potential for elevated gross margin to be sustained.
As such, the analyst reiterates a Buy rating on AAPL, with a price target of $182, which represents a potential upside of 21% from where the stock is currently trading.
Chokshi wrote, “Given our proprietary demand elasticity data that indicates a significant mix shift towards the iPhone X, we view the early data points that demand for the iPhone 8/8+ are weaker than the iPhone 7/7+ in the year ago period as evidence that this mix shift is indeed happening. Also, as discussed in our September 14th note, we expect this mix shift to drive a 22% y/y ASP increase for iPhone, and due to pent up demand from existing iPhone users, for AAPL to still achieve 14% y/y unit growth. Additionally, given our expectation that the iPhone X likely carries only an additional $20-$30 of bill of materials relative to the iPhone 8, we expect the iPhone GM to increase from ~43.5% in FY17 to 47.8% in FY18E, which drives our overall GM estimate for FY18 from 38.4% to 41.9% (pre and post September 14th note). The result is that (on September 14th), we significantly raised our FY18 EPS estimate from $11.75 to $13.29, 22% above the FY18 consensus estimate of $10.90 (consensus is now $10.98).”
How does Chokshi’s bullish bet weigh in against the Street? It appears the analyst is not the only one enthusiastic on this iPhone maker prospects, with TipRanks analytics demonstrating AAPL as a Buy. Out of 31 analysts polled by TipRanks in the last 3 months, 23 are bullish on Apple stock while 8 remain sidelined. With a return potential of nearly 14%, the stock’s consensus target price stands at $174.11.
A deep dive into CALM gives Chokshi a greater confidence in prospects for Nutanix. The analyst believes CALM is a highly differentiated software feature within the company’s software stack, and represents a $22 billion operating profit opportunity.
As such, Chokshi reiterates a Buy rating on Nutanix, with a price target of $41, which represents a potential upside of 67% from where the stock is currently trading.
The analyst opined, “We recently had the opportunity to speak with Aditya Sood, founder of Calm.io (currently managing the integration of CALM into the NTNX enterprise cloud) that was purchased by NTNX in August of 2016. Based on our conversation and follow up due diligence with other Application Lifecycle Management (ALM) engineers, we believe NTNX’s claim that CALM will offer customers a 10x-50x simpler capability relative to other ALM tools, including vRealize Automation from VMware (VMW – $109.07 – Hold), will prove true.”
“…we expect that the CALM software as part of the Nutanix Enterprise Cloud will enable significantly higher levels of software attach, outside of the growing OEM software only relationships. Given this due diligence, we have even greater confidence in our initiation assertion that NTNX is addressing a $22B operating profit opportunity that consists of $8B from server & storage software and another $12B from the hypervisor, cloud management and systems management infrastructure software markets,” the analyst added.
Out of the 13 analysts polled in the past 3 months, 10 rate Nutanix stock a Buy, while 3 rate the stock a Hold. With a return potential of 31%, the stock’s consensus target price stands at $30.82.