Glimpse into Apple Inc. (AAPL), Universal Display Corporation (OLED), and the iPhone X Factor

Cowen is weighing in on the rumored iPhone 8 model from a bullish standpoint on both Apple Inc. (NASDAQ:AAPL) as well as Universal Display Corporation (NASDAQ:OLED). While one analyst explores the multi-faceted features heavily anticipated for the higher-end edition, another analyst elaborates on how this not only brings a positive riptide for Apple, but also for Universal Display, as display technology is about to light up the tech-verse. Let’s take a closer look:

Setting Apple iPhone X Expectations

Cowen analyst Timothy Arcuri is spotlighting Apple as he delves into a sneak peek of what to expect with the illustrious tenth anniversary iPhone model, the “iPhone X” factor anticipated for a release this year.

Not only does the analyst see advantage for Apple investors, reiterating an Outperform rating on shares of AAPL with a $135 price target, but he likewise sees positives for QUALCOMM, Inc. (NASDAQ:QCOM) thanks to Intel Corporation (NASDAQ:INTC) delivering the tech giant a baseband modem for the iPhone, as well as for Broadcom Ltd (NASDAQ:AVGO) in regards to wireless charging chips.

However, while Arcuri believes 2017 will certainly be the year of the iPhone X, he warns the rumormongers buzzing about a prospective early launch that though the giant has started to place orders, “Our field work continues to support a feature-rich launch w/three models (5.8” in addition to existing 4.7/5.5” in terms of panel sizes), but no signs of an early launch this year.”

Moreover, the analyst expects a new design to excite the Street with many holding out expectations for a revamped model, including new AMOLED display technology. “We continue to see a ‘wraparound’ design using ‘fixed flex’ screen from Samsung as the PCB appears to be only 5.1-5.2’’. The PCB itself would be higher-end, substrate-like, and thinner, however with low yield which is a contributing factor to the uncertainty around the ultimate SKUs, how many will use OLED, etc. The panel choice for the other two models is still keyed to two main factors: 1) Samsung’s ability to supply 100MM OLED screens in ’17 (not a concern of ours) and 2) more significantly, digestion of current LCD inventory for which AAPL has already pre-paid,” asserts Arcuri.

In addition to wireless charging, with Arcuri pointing to AVGO as APPL’s resource for IC, he dashes hopes for end-to-end display, contending, “Relative to under-glass fingerprint sensors, our checks indicate no breakthrough so far (capacitive ones can’t sense through a full thickness cover glass of 500+ microns).”

For this reason, though many new high-end features await with the release of the iPhone X, the analyst does not believe a bezel-free design with Touch ID integration beneath the glass or active display area will be part of the exciting bundle in this forthcoming edition.

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 Timothy Arcuri is ranked #124 out of 4,456 analysts. Arcuri has a 67% success rate and garners 16.6% in his annual returns. When recommending AAPL, Arcuri gains 27.4% in average profits on the stock.

TipRanks analytics exhibit AAPL as a Strong Buy. Out of 35 analysts polled by TipRanks in the last 3 months, 28 are bullish on Apple stock while 7 remain sidelined. With a return potential of 4%, the stock’s consensus target price stands at $141.55.

Buy Universal Display Shares on Dips

Cowen analyst Robert Stone might have reigned in profit projections on Universal Display, but considering 2019 guidance with regards to revenue from television and mobile devices, he believes display technology is about to take center stage. Particularly thanks to Apple iPhone X buzz, the Chinese display maker stands to benefit from the first ever foray into AMOLED display technology in place of the customary LCD display.

As such, the analyst reiterates an Outperform rating on OLED while boosting the price target from $75 to $90, which represents a just under 25% increase from where the shares last closed.

IHS, a research firm, predicts capital spending is about to rain dollars on displays, boosting 2015’s $7 billion up by $10 billion this year alone. Moreover, display glass in square meters prepares to rise 46% for 2017 and 66% by next year, which denotes a 27% surge from 2016. Why? The Apple X factor is inciting other firms to jump on aboard to try to be secondary sources, causing production to step up. Additionally, these companies also see reasons to produce more big-screen televisions.

Nonetheless, though Stone sees full steam ahead for OLED and has lifted his price target, he cautiously pulls back revenue estimates as new mobile AMOLED producers learn how to grasp what this fresh technology will entail; and how this will trickle down in terms of licensing as well as royalties for the Chinese display maker.

“We reduced 2017-19E revenue to $250MM, $335MM, and $410MM (vs. prior $260MM, $340MM and $415MM). We eliminated host material, and reduced 2017-18E license and royalty based on ramp timing for non-Samsung capacity. We model a 2016-20E revenue CAGR of 25%, 27% for materials and 23% for licensing, as we expect new capacity and new entrants to start out at lower yields. We now model 2017-19E EPS of $1.46, $2.62, and $3.52 (vs. prior $1.57, $2.65, and $3.54. Our new $90 PT (up from $75) implies a P/E of 25.6x 2019E EPS, and a PEG of 0.75x (vs. 41% net margin),” concludes Stone, who leaves investors with a last morsel of advice: “buy on dips.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Robert Stone is ranked #4,136 out of 4,456 analysts. Stone has a 39% success rate and loses 5.7% in his yearly returns. However, when recommending OLED, Stone earns 20.0% in average profits on the stock.

TipRanks analytics demonstrate OLED as a Buy. Based on 2 analysts polled by TipRanks in the last 3 months, 1 rates a Buy on OLED stock while 1 maintains a Hold. The 12-month average price target stands at $90.00, marking a nearly 25% upside from where the stock is currently trading.

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