Analysts are offering bullish views on Apple Inc. (NASDAQ:AAPL) and Alibaba Group Holding Ltd (NYSE:BABA), expressing greater confidence than consensus on both stocks. Though the analysts recognize risk factors facing these two giants, they both advocate the reasons to buy outweigh the cases to be cautious.
Let’s take a closer look:
Applesphere Ecosystem Evolving, But Continues to Grow
When assessing Apple’s installed base as well as user spending projections, UBS analyst Steven Milunovich spotlights potential upside to the stock and approaches his research report from a more bullish perspective than the market.
Therefore, the analyst reiterates a Buy rating on AAPL with a price target of $127, which represents a just under 6% increase from where the shares last closed.
Milunovich opines, “Apple is struggling for a narrative beyond the iPhone cycle. Its emphasis on services points to a growing ecosystem. One way for investors to monitor the Applesphere is by tracking the installed base and spending per user. We estimate Apple added 100mn users to its iPhone installed base in both F15 and F16 while revenue per user declined from $520 to $396. Over time installed base growth should slow due to size and increased competition, but revenue per user per year could stabilize around $340 even assuming no major product hits.”
In his forecast, the analyst predicts the tech giant will see two additional years of growth in its installed base to the tune of double-digits on back of the following two driving forces: his upgrade model coupled with new AAPL users. However, once these two years come to pass, the analyst prepares for the growth to flatten to a low-to-mid single digit range.
Looking ahead, “The March and June quarters could have downside risk, but it might not matter if investors remain optimistic about F18,” Milunovich contends.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Milunovich is ranked #1,541 out of 4,361 analysts. Milunovich has a 50% success rate and realizes 2.0% in his yearly returns. When suggesting AAPL, Milunovich yields 8.7% in average profits on the stock.
TipRanks analytics exhibit AAPL as a Strong Buy. Based on 31 analysts polled by TipRanks in the last 3 months, 26 rate a Buy on AAPL stock while 5 maintain a Hold. The 12-month average price target stands at $136.83, marking a 14% upside from where the stock is currently trading.
Alibaba: A Positive “Cheat Sheet” for What to Expect for FQ3:17 Results
With Alibaba set to deliver its fiscal third-quarter print on January 24th, top analyst Mark Mahaney at RBC Capital outlines a confident preview for the Chinese online retail giant, anticipating beats across the board.
Ahead of the fiscal third quarter earnings release, the analyst reiterates an Outperform rating on shares of BABA with a $120 price target, which represents a 25% increase from where the stock is currently trading.
For the quarter, the analyst calls for revenue of 51.5 billion RMB, just over consensus of 50.1 billion RMB. Moreover, Mahaney projects adjusted EBITDA of 27.2 billion RMB, indicating a 53% margin, also ahead of consensus of 24.5 billion RMB, which denotes a 49% margin. The analyst forecasts adjusted EPS to hit 8.28 RMB, which if proven right, will also outperform the Street’s expectations of 7.72 RMB.
Mahaney believes, “Fundamental trends remain robust and driven by continued Mobile traction, which we believe will help sustain premium growth rates in the Core China Commerce segment, particularly as more brands/merchants advertise on BABA and average merchant spending increases. BABA also continues to demonstrate high levels of profitability (62% margins in Core Commerce; 46% total EBITDA margins; $14B in FCF in the September Quarter).”
Furthermore, the analyst elaborates that even potential risks have strong offsets to counterbalance, thanks to solid trends and long-term prospects, explaining, “China Macro is a concern, but we believe Internet Secular trends can offset much of this. We view BABA as a Premium- Growth/Premium-Profit Asset, at a reasonable valuation. We also view this as a very effective management team with a sound long-term strategy.”
“Finally, we see BABA as having significant option value from non-retail/platform revenue streams in China, possibly International expansion & a series of major strategic investments,” Mahaney concludes.
Mark Mahaney has a very good TipRanks score with a 71% success rate and a high ranking of #2 out of 4,368 analysts. Mahaney gains 21.4% in his annual returns. When recommending BABA, Mahaney earns 9.1% in average profits on the stock.
TipRanks analytics demonstrate BABA as a Strong Buy. Out of 14 analysts polled by TipRanks in the last 3 months, all 14 are bullish on Alibaba stock. With a return potential of nearly 27%, the stock’s consensus target price stand at $121.83.