Apple Inc. (NASDAQ:AAPL) and Lululemon Athletica inc. (NASDAQ:LULU) are experiencing opposite fates in the stock-verse this week, with Apple hype speeding down the tracks toward the keyed up iPhone X launch this fall while Lululemon careens from same store sale pressures that led investors scurrying away. Analysts alter price targets in reverse directions, from Raymond James excited on Apple even amid escalating DRAM and NAND costs to a far more cautious FBR who questions what lies in store for Lululemon’s long-term prospects. Let’s take a closer look:
Apple Upgrades on the Back Burner Until iPhone 8
Apple build up for the iPhone X continues to escalate, and Raymond James analyst Tavis McCourt joins in the bullish conversation as all survey signs point to big iPhone purchases ahead. In reaction, the analyst reiterates an Outperform rating on shares of AAPL while lifting the price target from $152 to $159, which represents a just under 11% increase from where the stock is currently trading.
McCourt notes consumers are “starting to pull back on purchases ahead of a much anticipated iPhone launch later this year,” prompting him to lift 2018 projections from $252.63 billion to $261.4 billion in revenue and from $10 to $10.24 for EPS. When polling 500 domestic smartphone users, customer retention rates proved most robust for iPhone owners, with Apple scoring a 93.7% retention rate compared to Android’s 84.9% retention rate.
“The story becomes more interesting when considering the timing of respondents’ intended upgrades. In our March survey, only 5.3% of iPhone owners we surveyed expect to purchase an iPhone in the next three months (the lowest in our survey’s history), while 34.1%, a record high in our survey, intend to purchase on in the next 12 months (the highest in the survey’s history.) This data is consistent with U.S. consumers being quite aware of a potentially major iPhone model coming out later this year, which has fewer willing to upgrade in the next few months, but a more than typical amount expecting to purchase on the next upgrade cycle.”
However, the analyst advises to keep a watchful eye out for memory chips, considering prices have been “volatile,” flashing “meaningfully” upward in costs in recent months. Yet, largely, this is not a surprise to the tech giant, and the analyst remains on the whole unfazed, concluding, “Apple indicated in its January conference call that it was assuming higher commodity costs, so we can assume at least some of this added cost burden is already baked into the March gross margin guidance.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Tavis McCourt is ranked #500 out of 4,558 analysts. McCourt has a 63% success rate and realizes 8.4% in his annual returns. When recommending AAPL, McCourt yields 31.8% in average profits on the stock.
TipRanks analytics exhibit AAPL as a Buy. Out of 37 analysts polled by TipRanks in the last 3 months, 29 are bullish on Apple stock, 6 remain sidelined, and 2 are bearish on the stock. With a return potential of nearly 7%, the stock’s consensus target price stands at $153.69.
Lulu: Will the Power of the Brand Be Enough to Outlast the Competition?
Lulu shares deflated 23% yesterday after the athletic apparel giant stumbled on sluggish same-store sales (SSS) in its fourth quarter performance for 2016. Though FBR analyst Susan Anderson recognizes Lululemon has taken proactive steps to address its SSS setback, the analyst remains wary on the giant’s future in face of a rival-rising atmosphere.
Therefore, the analyst reiterates a Market Perform rating on LULU while reducing the price target from $67 to $59, which represents a just under 11% increase from where the shares last closed.
For the fourth quarter, LULU posted adjusted EPS of $1.00 (not withstanding a 1 cent tax impact), compared to the analyst’s and consensus forecasts of $1.01 as well as guided EPS between $0.99 and $1.01. From the analyst’s perspective, this mirrors a 7% rise in constant-currency comps, higher than what she anticipated at 6% as well as consensus who called for 5.4%. LULU management guides the first quarter of2017 to $0.25 to $0.27 in EPS, lower than the analyst’s expectations looking for $0.34 and consensus of $0.39. Additionally, LULU sets 2017 guidance between $2.26 and $2.36, under the analyst’s $2.40 projection and consensus of $2.57.
On the bright side, the giant is taking “initiatives to improve sales,” explains the analyst, noting, “LULU has many ecommerce initiatives to drive improved sales as consumers move online, including a new mobile app to launch in 2Q17 and upgrade of ship from store in 2Q17. Additionally, LULU has a number of strategic sales investments that will ramp up in 2017, including new product introductions with more depth/color (flowing in now and more so in 2Q17) and better online merchandising, new outerwear styles in 2H17, a new brand campaign in 2Q17, and a new CRM system.”
Overall, “Management noted that 1Q SSS got off to a tough start as ecommerce conversions slowed at the end of January and continued to be soft 1QTD (management believes product was too dark), and mall traffic weakened in Feb which impacted store sales. We believe an improvement is expected in April given the shifts, which is likely factored into guidance. While we believe LULU has a strong brand, we are concerned the environment has become more competitive and it will be tough for LULU to return to +MSD comps to execute its margin strategy and maintain our Market Perform rating,” Anderson concludes, questionable that the giant’s margin profile can be “achievable longer term.”
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, three-star analyst Susan Anderson is ranked #2,246 out of 4,558 analysts. Anderson has a 52% success rate and earns 1.0% in her yearly returns. However, when recommending LULU, Anderson loses 14.9% in average profits on the stock.
TipRanks analytics show LULU as a Hold. Based on 21 analysts polled by TipRanks in the last 3 months, 8 rate a Buy on Lulu stock, 10 maintain a Hold, while 3 issue a Sell. The 12-month average price target stands at $63.08, marking a 24% upside from where the stock is currently trading.