BMO Capital’s Take on Apple Inc. (AAPL) and Hewlett Packard Enterprise Co (HPQ) Following iPhone 7 Launch and Earnings

Apple Inc.

Apple Inc. (NASDAQ:AAPL) unveiled its heavily anticipated iPhone 7, along with upgraded watches and new wireless headphones at its special event in San Fransisco yesterday. Though BMO analyst Tim Long notes minimal surprise, as most were alerted by the rumor mill of these incoming changes, he leaves the launch remaining confident on the tech giant’s prospects, positive on the enhancements brought to the AAPL table.

Believing that “the design improvements make for attractive phones, which will be meaningful upgrades to the aging installed base,” Long reiterates an Outperform rating on shares of AAPL with a $116 price target, which represents a 7% increase from where the stock is currently trading.

Regarding iPhone 7 changes, Long notes, “We have modeled that a record level of the installed base is reaching two years of age or older, and we expect the upgraded features to be attractive to this group.” Particularly with attention to the dual-lens cameras only on the iPhone 7 Plus models, Long believes “more on-the-fence buyers” will be given greater incentive to swing for the better zoom and focusing.

In the newest version of the iPhone 7, gone are the times of the headphone jack. However, the analyst underscores that while Apple “blunted the impact” to help users transition by gifting Lightning earbuds and an adapter, come October, Apple consumers will need to buy wireless AirPods for $159.

“There were few surprises given the trickle of leaks in the media over the past few months, though we did like the new phone’s design as well as pricing tweaks. We continue to believe that the iPhone 7 will do well, not so much because of the new features. We believe the device will sell well because the installed base has grown dramatically, and there are more old phones in the installed base than there have been for prior cycles,” he concludes.

Additionally, Long predicts the improved Apple Watch will be the next “hot holiday gift,” generating additional momentum for AAPL.

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, four-star analyst Tim Long is ranked #522 out of 4,147 analysts. Long has a 61% success rate and yields 6.8% in his annual returns. When recommending AAPL, Long gains 8.3% in average profits on the stock.

TipRanks analytics exhibit AAPL as a Strong Buy. Based on 34 analysts polled in the last 3 months, 31 rate a Buy on AAPL, 2 maintain a Hold, while 1 issues a Sell. The consensus price target stands at $125.78, marking a 16% upside from where the shares last closed.

Hewlett Packard Enterprise Co

Hewlett Packard Enterprise Co (NYSE:HPE) posted mixed third-quarter results yesterday, with a shining margin performance offsetting weak revenue. In spite of the shortfall, BMO’s Tim Long focuses on “the bigger story:” the technology giant announced another divestiture, a spin-off/merger of the Software business with Micro Focus.

HPE closed the July quarter with $12.2 billion in revenue, falling short of both Long’s and the Street’s projection of $12.6 billion. However, the company did outclass with an EPS beat, $0.49 topping Long’s estimate of $0.45.

Commenting on the revenue miss, Long points out this is not entirely a negative, explaining, “Some of the revenue weakness was deliberate as HPE repositions the company for profitable growth, a positive move in our view.”

Ultimately, a lot rides on this new divestiture from Long’s viewpoint. “The deal should further unlock value and positions the company as a pure play enterprise hardware vendor. That will offer an improved growth and margin profile, but likely also marks the last significant divestiture; execution will now be key,” he concludes.

Finding the “software sale a positive,” Long reiterates an Outperform rating on HPE, while raising the price target from $24to $26, which represents a nearly 18% increase from where the shares last closed. Additionally, Long boosts his EPS estimate for the fiscal year of 2016 from $1.88 to $1.92. However, the analyst cuts his EPS estimate for the fiscal year of 2017 from $2.12 to $2.06 as a reflection of lower revenue assumptions.

TipRanks analytics demonstrate HPE as a Buy. Based on 14 analysts polled in the last 3 months, 8 rate a Buy on HPE, while 6 maintain a Hold. The 12-month average price target stands at $23.64, marking a 7% upside from where the stock is currently trading.


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