U.S. stocks are under pressure in afternoon trading, weighing down by healthcare and financial stocks. Among the equities in analysts’ focus today are tech giant Apple Inc. (NASDAQ:AAPL), drug maker Alcobra Ltd (NASDAQ:ADHD), and social media platform Twitter Inc (NYSE:TWTR). Let’s take a closer look.
As Apple slated to step into the earnings limelight on Tuesday, January 31, Morgan Stanley analyst Kathryn Huberty becomes more conservative. The analyst lowers her FY 2017 Apple estimate to “reflect weaker iPhone 7 demand (7 Plus stronger).
Huberty wrote, “We increase FY18 iPhone revenue by 6% and now look for 20% Y/Y shipment growth, which is in line with the low-end of supply chain checks. Our FY18 iPhone units are unchanged at 253M but the lower base in FY17 now reflects 20% unit growth next year which is at the low-end of supply chain checks pointing to 20-30% unit growth. We increase FY18 iPhone ASP by 6% flowing through the better mix and new high-end price points. We expect compelling new features such as AMOLED displays, new casing and wireless charging, and think Apple could implement select features only in higher end models and likely raise prices at the high-end, similar to the dual-camera exclusivity and the $20 price increase for the 7 Plus this year. While we think Apple has many levers to offset bill of material increases, we lower FY18 GM by 30bps to 37.7% to consider risk of lower manufacturing yields on new components and recent increases in NAND spot prices and the stronger US Dollar.”
“We believe the market is focusing too much on near-term data points, and not enough on upcoming catalysts. We see an iPhone supercycle led by China in FY18, and in this report we increased our iPhone ASPs while maintaining shipment estimates for next year. We see a reasonable probability of US cash repatriation during the new administration, which could drive significant cash return and acquisitions, especially in media,” the analyst added.
Huberty reiterates an Overweight rating on AAPL, with a price target of $148.
Alcobra announced top-line results from its Phase 3 MEASURE study showing that investigational product Metadoxine Extended Release (MDX) missed the primary endpoint in adult ADHD, sending shares plummeting nearly 50% as of this writing.
Oppenheimer analyst Jay Olson commented, “Following the press release on the Ph3 failure, the company has a market cap of less than $30M and is trading below cash (~$50M). By deploying its cash reserves carefully and strategically, we believe ADHD has potential to build upon the current valuation.”
Furthermore, “Mgm’t announced that ADHD will evaluate internal and external opportunities and deliver an update in the coming weeks. We believe internal programs include MDX for Fragile X syndrome (completed Ph2 study in adolescents and adults) and MDX for cognitive impairment.”
“Based on the discontinuation of MDX’s development in ADHD which leads to the reduced commercial potential of MDX beyond Fragile X, we remain on the sidelines with a Perform rating on ADHD shares. We look forward to an update from management on future opportunities in the next few weeks,” the analyst concludes.
UBS analyst Eric Sheridan downgraded shares of Twitter from Buy to Neutral, while reducing the price target to $18.00 (from $22.00), which represents a 6% upside from current levels.
Sheridan explained, “Based on our 2H’16 ad industry conversations & Q4’16 channel checks, we believe that TWTR faces forward medium term operating challenges in its advertising business that will produce growth rates below industry. In our analysis, the main drivers of those operating headwinds are poor execution in its direct response advertising efforts (some products now being de-commissioned), continued pressure on the mix of available ad inventory and pricing, overall industry competition as GOOG/FB maintain consistent strength and Instagram/Snapchat monetization efforts begin to ramp & mgmt turnover (most notably COO Adam Bain). In our recent advertising industry deep dive (link), we noted that UBS Evidence Lab work points to flattening engagement trends and flat to decreasing ad effectiveness across Twitter.”