Apple Inc. (AAPL) Monitor Reveals Strong Momentum in February, Snap Inc (SNAP) Could Make Ideal $20 Billion+ M&A Target


Drexel Hamilton and FBN highlight pluses and minuses for Apple Inc. (NASDAQ:AAPL) and Snap Inc (NYSE:SNAP). One analyst cheers the tech giant for posting seasonally robust sales this past month, but also acknowledges a backtrack in status at the Mobile World Congress last week amid pressure from Samsung’s Galaxy. Conversely, another analyst initiates coverage on Snap from a cautious perspective, wary on waning user growth, yet enticed by the M&A opportunity Snap presents to  Facebook Inc (NASDAQ:FB). Let’s dive in:

‘Apple Monitor’ Beats Historical Seasonality in February

Drexel Hamilton analyst Brian White is all the more confident on Apple after assessing strong results from the companies in his Apple Monitor index, which tracks sales of nine ‘important’ publicly-traded Apple suppliers based in Taiwan. These companies posted February sales that outclassed in terms of historical seasonal performance, benefiting from the iPhone 7 coupled with the holiday season.

In reaction, the analyst praises the tech giant as one of the greatest undervalued stocks globally and reiterates a Buy on shares of AAPL with a $185 price target, which represents a 23% increase from where the stock is currently trading.

Though Apple Monitor sales in February dipped 14% month-over-month, over the past 12 years, the average decline was 18%. Additionally, considering over the course of five years, the average performance fell by 29% and 35% February of 2016, the analyst sees this as a solid improvement.

Additionally, “Last week, the smartphone lost its cachet at Mobile World Congress (MWC) as Samsung shifted the timing of its traditional Galaxy UNPACKED event until March 29 and overall market growth has slowed. […] That said, new smartphones were unveiled by a host of other smartphone vendors; however, nothing that makes us concerned with Apple in 2017 and especially with the major upgrade we expect with the iPhone ‘X’. Given the plethora of media reports indicating that Apple could introduce advanced 3D sensing technology with the iPhone ‘X’ this fall, we took another look at Lenovo’s Phab 2 Pro with Google Tango at MWC that we believe offers a taste of what is possible in the world of augmented reality (A/R). We believe the addition of advanced 3D sensing to the iPhone could peak the consumer’s curiosity and drive a strong upgrade cycle,” White contends.

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, five-star analyst Brian White is ranked #142 out of 4,514 analysts. White has a 65% success rate and realizes 10.0% in his annual returns. When recommending AAPL, White yields 23.5% 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, 28 are bullish on Apple stock, 7 remain sidelined, and 2 are bearish on the stock. With a return potential of 5%, the stock’s consensus target price stands at $145.79.

Snap from the Sidelines: Challenges with User Growth, But M&A Advantages

In a research report, FBN analyst Shebly Seyrafi initiates coverage on shares of Snap with a Sector Perform rating and a $23 price target, which aligns with current levels. Long-term, the analyst projects adjusted EBITDA margin to reach 32%, but anticipates upside potential.

“The company has a very strong presence in the 12-24 year age demographic, it has been highly innovative so far, and, according to our checks, advertisers intend to spend much more on SNAP, at the expense of TWTR, this year. Key concerns include slowing user growth recently, relatively weaker presence outside of the 12-24 demographic, and weak corporate governance considering that the publicly-0ffered Class A shares have no voting rights (thus hurting SNAP’s likelihood of being added to indices).”

However, though there are certainly concerns, the analyst also points out M&A possibilities, specifically believing the Snapchat-parent company could make for an ideal acquisition target, with Facebook as a likely contender to buy. It is worthy to note that FB was willing to shell out $21.8 billion in its acquisition of WhatsApp, which Seyrafi underscores “although it had more users than SNAP, was not generating any real revenue.” In the case of Snapchat as a prospective acquisition target, the analyst estimates Mark Zuckerberg could pay over $20 billion to buy SNAP at $14 per share.

“One of the key points that the bears on SNAP may be missing is that we believe that FB would love to acquire the company, […] There are several reasons why FB might make a bid for SNAP at the right price: 1.) FB already tried to acquire SNAP (for ~$3B in 2013), and 2.) FB has the balance sheet and cash flow to finance such a deal, and 3.) Such a deal would remove one of the few long-term threats to its business,” Seyrafi concludes.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst Shebly Seyrafi is ranked #1,630 out of 4,514 analysts. Seyrafi has a 53% success rate and gains 1.7% in his yearly returns. When recommending SNAP, Seyrafi earns 0.0% in average profits on the stock.

TipRanks analytics show SNAP as a Sell. Based on 8 analysts polled by TipRanks in the last 3 months, 3 maintain a Hold on Snap stock while 5 issue a Sell. The 12-month average price target stands at $18.19, marking a 21% downside from where the shares last closed.

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