Apple Inc. (AAPL) Installed Base Growth Remains Robust, Micron Technology, Inc. (MU) Preannouncement Indicates Strong Strides into Q3


As BMO delves closer into Apple Inc. (NASDAQ:AAPL) and its iPhone installed base while Barclays sings the praises of the recent preannouncement from Micron Technology, Inc. (NASDAQ:MU), one thing remains clear for both companies: good things await. For Apple, with a steady iPhone installed base and a refresh cycle surrounded by a lot of buzz, one analyst predicts both near-term and long-term success. For Micron, though pricing remains a grey cloud lingering in the back half of the year, another analyst sees the pre-release as a sign to stay bullish on the chip giant. Let’s explore:

Apple’s Next Few Years to Bring Strong Growth 

BMO analyst Tim Long is out with a confident forecast on Apple after diving in deeper to his iPhone installed base analysis. Anticipating a sturdy base ahead to bring in robust growth for years to come, the analyst reiterates an Outperform rating on AAPL with a price target of $160, which represents a 14% increase from where the shares last closed.

Long believes, “We estimate total iPhone installed base of over 700 million, including over 200 million second-hand phones, and project growth to remain strong over the coming years. The higher number of iPhones will continue to propel Services revenues, and we look at how Apple could reach its goal of doubling the business over the next four years.”

Seeing an “Installed base age positive into the next refresh cycle,” the analyst projects that of the new phone installed base, 31% will be two years or older by the time the iPhone X launches come September. “Although refreshment cycles are lengthening to 2.5+ years, which means not everyone will take advantage, the availability of un-upgraded phones will serve as a tailwind as Apple launches the new models,” continues Long.

Though the analyst sees the target of doubling Services revenue as “ambitious” he also deems it an “achievable” goal. Currently, Services brings in $24 billion to the tech giant, with App Store sales as the “single biggest contributor” thanks to $7 billion in revenue for fiscal 2016. Yet, the analyst anticipates “[…] other businesses like Music and iCloud are also going to be key contributors in the coming years.”

Overall, “We continue to believe near term the stock will be driven by sentiment around the upcoming refresh cycle, while the factors outlined in this report will drive growth longer term,” Long concludes.

According to TipRanks, which measures analysts’ and bloggers’s success rate based on how their calls perform, five-star analyst Tim Long is ranked #421 out of 4,513 analysts. Long has a 61% success rate and garners 10.3% in his annual returns. When recommending AAPL, Long earns 29.0% in average profits on the stock.

TipRanks analytics exhibit AAPL as a Strong Buy. Based on 36 analysts polled by TipRanks in the last 3 months, 29 rate a Buy on Apple stock while 7 maintain a Hold. The 12-month average price target stands at $144.83, marking a nearly 4% upside from where the stock is currently trading.

Micron’s Encouraging Momentum 

Micron shares were rising almost 4% on Friday after a positive preannouncement for the second fiscal quarter excited investors. Ahead of the chip giant’s expected second fiscal quarter print due March 23rd, Barclays analyst Blayne Curtis cheers the positive preannouncement as a signal of “continued momentum” heading into the third quarter.

In reaction, the analyst reiterates an Overweight rating on shares of MU with a $26 price target, which represents a just under 2% increase from where the stock is currently trading.

Curtis notes, “The positive preannouncement makes for the 3rd in a row and hardly comes as a surprise given recent pricing trends and commentary from OEMs and channel partners regarding tight memory supply throughout earnings,” adding that MU attributes the solid preannouncement to chiefly mix, improvements in cost, as well as pricing.

For the second fiscal quarter, MU preannounced revenue to reach $4.65 billion, give or take $50 million, compared to the prior expectation of $4.35 to $4.70 billion. Additionally, the chip giant calls for GM to hit 37.5% give or take 0.5%, which marks quite a rise from the prior expectation of 31% to 34%. Subsequently, MU management now guides to new EPS of $0.86, give or take a few cents, which is well above the previous guide of $0.58 to $0.68.

In light of the updates, the analyst has raised DRAM ASP in his forecast up 20%, compared to a prior boost of 15% quarter-over-quarter while leaving NAND ASP flat, considering revenue impact delay. For the most part, “pricing remains healthy” for DRAM and NAND, and the analyst sees Micron in solid standing.

Ultimately, “We maintain a cautious view on pricing in the 2H and beyond given pricing will eventually follow bit costs lower, but we note that barring a major economic downturn, pricing historically has flattened for a period post a big move up, and we can see the stock continuing to rise even if ASPs do plateau. We are also encouraged by the significant GM gains and see continued improvement through the year as 1Xnm DRAM comes online (>20% cost improvement), and 3D NAND and 3D XPoint ramps (significant cost/bit gains). We remain positive on the name as they take advantage of supply/demand dynamics while launching new technologies that further improves profitability,” Curtis surmises.

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 Blayne Curtis is ranked #268 out of 4,513 analysts. Curtis has a 67% success rate and realizes 12.2% in his yearly returns. When recommending MU, Curtis yields 59.3% in average profits on the stock.

TipRanks analytics indicate MU as a Strong Buy. Out of 22 analysts polled by TipRanks in the last 3 months, all 22 are bullish on Micron stock. With a return potential of nearly 16%, the stock’s consensus target price stands at $29.61.

 

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