What happened to once illustrious billionaire Steve Cohen? Cohen had been on top of the world until 2013 hit with the biggest securities fraud legal drama a hedge fund firm had ever seen. In the interim following these financial skeletons in his closet, Cohen has been trading his own money at Point 72 Asset Management since 2014, a family office the billionaire kickstarted following the shakedown. By the looks of Cohen’s latest quarterly play, it appears the rallying hedge fund trader is not too eager on two of the tech sector’s leading giants, having lessened positions in Micron Technology, Inc. (NASDAQ:MU) and Apple Inc. (NASDAQ:AAPL). There is no time to lose here as Cohen has a lot to riding on his return to form.
With a loaded history now, this is a guru who pleaded guilty to the insider-trading allegations, forced to close his firm SAC Capital Advisors, pay a whopping $1.8 billion fine, and was thereby banned until the light of 2018 from accepting outside money. Well, as 2018 approaches, it is easy to bet who stands among the most excited for the prospects of what the new year could bring: Cohen, who is ready to rebound from the scandal that took apart his once immensely profitable hedge fund firm.
Despite Cohen’s fall from grace, it looks like the billionaire has his eyes on generating what would be the largest hedge fund in the states until now, should he succeed in raising $20 billion for the new hedge fund. Slated for the beginning days of the new year, Cohen has no interest in anything less than winning in the market trading game once more.
Is Cohen playing it safe or wise in winding down stakes in Micron and Apple? For a man looking at great stakes as he tries to make a grand comeback in 2018, these technology giants have the billionaire running away. Let’s explore how these moves measure up against the word of the Street:
Micron Split in Two
In the latest quarterly play, Cohen opted to dial down his stake in Micron by half. Tossing out 1,515,935 shares from the position, Cohen now holds a stake of 1,530,600 shares worth $60,198,000 in the chip giant.
However, did Cohen play the smartest move here? Today, Micron shares are on a 6% rise after last night’s robust first fiscal quarter earnings triumph, where the company not only outclassed the Street on the print, but the giant likewise impressed investors with its stellar second fiscal quarter outlook.
For the first fiscal quarter, Micron saw revenue surge to $6.8 billion and brought $2.45 in EPS to the table, a nice outperformance against analyst expectations calling for $6.44 billion and $2.20 per share. Gross profit margin meanwhile shot up from last quarter’s 50.7% to 55.1% on back of a lift in DRAM and NAND profits, which the MU team attributes to “ongoing strength in the pricing environment and a favorable product mix.”
CEO Sanjay Mehrotra cheers his giant’s “strong” earnings turnout, giving kudos to “double-digit sequential revenue growth in mobile, server and SSD applications.”
“We are making solid progress on our strategic priorities to drive cost competitiveness, deploy high value solutions and strengthen our balance sheet,” Mehrotra highlights, as he predicts: “We believe these actions will position Micron to benefit from the broad demand trends ahead of us.”
Top analyst Vijay Rakesh at Mizuho commends the “solid” performance from Micron, also thrilled with the second fiscal quarter guided up to $7 billion in revenue and $2.58 in EPS, shooting well past consensus expectations. With GM guided to roughly 56%, a “historical high” and another beat against the Street, the analyst continues to bank on this chip giant’s success.
As such, the analyst reiterates a Buy rating on MU stock while bumping up the price target from $45 to $50, which implies a just under 7% upside from current levels.
Rakesh likes the flash memory backdrop for Micron: “DRAM and NAND remain strong, with DRAM Enterprise and Cloud shipments up 50% y/y and SSDs up 50% q/q. With strong fundamentals, continued cost reductions and stable ASP / margins, EPS is now running at an annual rate of ~$10/shr. With GMs at an all-time high at ~56% and a stable 1H18 outlook,”
Ultimately, this top analyst recognizes an excellent opportunity to buy into this chip giant, concluding: “We believe against a backdrop of continued strong fundamentals, annual EPS at ~$10/shr with GM at a historical high at ~56%, and cost reductions, MU presents an attractive opportunity as one of the cheapest memory suppliers.”
ijay Rakesh has a very good TipRanks score with a 73% success rate and a high ranking of #24 out of 4,725 analysts. Rakesh yields 30.0% in his annual returns. When recommending MU, Rakesh garners 58.3% in average profits on the stock.
TipRanks reveals a strong bullish analyst consensus backing this semiconductor stock, with 19 out of 21 analysts in the last 3 months rating a Buy on Micron and just 2 maintaining a Hold. Is this tech player undervalued or overvalued in the market? Worthy of note, the 12-month average price target stands at $56.90, marking a solid 29% upside from where the stock is currently trading.
Apple Gets Halved
Apple got an over 50% trim from the billionaire since the last SEC filing, with Cohen selling 346,806 shares in the tech giant’s empire. Now, Cohen’s stake holds 311,765 shares worth $48,049,000.
In fact, Cohen is not the only one losing faith in the big AAPL machine, considering the giant just lost itself a bull in Nomura analyst Jeff Kvaal.
True, the iPhone X’s “super cycle” has yielded nice gains, but Kvaal believes growth is starting to hit “in the late innings.” Consider that the multiple has skyrocketed to 15x, spiraling to “supercycle highs,” and yet: “mid-cycle lows are painful,” Kvaal warns.
In reaction, the analyst downgrades from a Buy to a Neutral on AAPL stock while slicing the price target back from $185 to $175, which mirrors current trading levels. (To watch Kvaal’s track record, click here)
When assessing Apple’s history of multiple peaks in iPhone cycles, the analyst notes that what comes up must come down. Whereas the iPhone 5 cycle shot up to a multiple of 13x, the low then sank to 8x. Meanwhile, the iPhone 6 multiple may have likewise achieved 15x, the multiple proceeded to drop down to 9x. By Kvaal’s calculations, “The recoveries required ~20 months.” Apple’s track record reveals shares that slipped 41% in the market on the heels of the iPhone 5 launch, a stumble that repeated following the iPhone 6 launch, with the stock losing 27% in value. Is this time any “different” with the iPhone X launch? Kvaal argues no, and as such, “we do not expect the services business or tax reform to be sufficient to flout the historical pattern.”
Kvaal notes, “The iPhone X’s supply is coming into balance in just 7 weeks. This is faster than 2016’s iPhone 7 Plus which took 14 weeks. We draw two implications […] We induce from muted iPhone X promotions that demand is likely to be in line with Apple’s expectations for F1Q. This suggests upside from the consensus estimate of 79mn is likely to be muted.”
Not only has the analyst reduced his 12-month expectations for the tech player, he likewise has scaled back his forecast for iPhone units from 81 million to 80 million. “The restoration of equilibrium in supply and demand casts aspersions on telco claims that poor supply drove light 4Q promos […] Earlier in the quarter, the U.S. telcos had suggested limited supply of the iPhone X would push demand into the March quarter. This premise has filtered into our and consensus estimates. We now view below-seasonal declines as less likely,” continues the analyst.
Ultimately, average selling price (ASP) boosts are not “sustainable” from where Kvaal stands as a driver of upside to the giant’s revenue gains at the end of the day. As such, the analyst lowers his ASP assumption for the first fiscal quarter of 2018 from $86.19 billion to $86.44 billion. Worthy of note, Kvaal’s ASP projection still soars higher than the Street’s $86.21 billion as well as the AAPL team’s guide of $84 billion to $87 billion. Yet, for the second fiscal quarter, the analyst winds down his revenue expectations from $69.67 billion to $68.52 billion, under consensus expectations of $68.94 billion.
TipRanks indicates a more confident analyst consensus than Cohen’s and Kvaal’s more cautious moves, with 22 out of 29 analysts bullish on Apple stock in the last 3 months, and just 7 analysts on the sidelines. With a return potential of nearly 9%, the stock’s consensus target price stands at $189.67.