Analysts were bullish on tech giant Apple Inc. (NASDAQ:AAPL) and entertainment giant Walt Disney Co (NYSE:DIS), following news coming from foreign markets that will help their long-term outlooks. Below, analysts discuss new initiatives that will help these companies increase revenue.
Mizuho analyst Abhey Lamba expressed a positive outlook for Apple following India’s announcement that it is “radically liberalizing” foreign investment regulations, thus making India the most open economy in the world for foreign direct investment.
India is now willing to exempt local-manufacturing rules for certain retailers, like Apple, that have “‘state-of-art’ and ‘cutting edge’ technology.” The analyst feels that this can bolster Apple’s annual revenue by $9-10 billion, 5% of its total revenue, by 2020 from India alone. Apple’s interest in breaking into the Indian market, the world’s fasted growing smartphone market, was shown in its request to open stores there this past January and CEO Tim Cook’s visit to India in May.
While the analyst believes that Apple can gain a 4-5% market share in India, he emphasizes certain barriers that may hinder Apple’s move into the country. First, Prime Minister Narendra Modi has been lobbying for a Make In India campaign, which would increase domestic manufacturing and jobs. This could be a problem for Apple considering it outsources some of its manufacturing to China. Additionally, Apple has to “address the biggest problem in the region, which is affordability.” The analyst expects limited demand because Apple’s products are very expensive relative to average Indian income. He explains, “With sweet spot of smart phone price points being around $150, Apple is still very expensive and will likely carry limited appeal.”
Even though the populations of India and China are similar, Lamba believes that India will “remain a significantly smaller contributor versus China.” He also warns that Apple is limited in the new geographic areas it can spread to.
In light of India’s leniency towards foreign direct investment, Lamba reiterates Apple a Buy rating with a price target of $120, marking a 26% increase from current levels.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Abhey Lamba has a yearly average return of 9.4% and a 66% success rate. Lamba has a 20.9% average return when recommending AAPL, and is ranked #226 out of 3977 analysts.
Out of the 38 analysts who have rated the company in the past 3 months, 84% gave a Buy rating, 13% gave a Hold rating and 3% gave a Sell rating. The average 12-month price target for the stock is $123.97, marking a 31% upside from current levels.
Walt Disney Co.
Analyst Barton Crockett of FBR & Co. provided his insights on Disney following a visit to its new Shanghai theme park and resort. The analyst believes that consensus opinions are underestimating the park’s margins and profits. The analyst feels that Disney will experience higher than consensus profits due to its “pairing the lower cost structure of a developing country with premium price and strong consumer interest.”
The addressable market of 330 million income-qualified Chinese citizens within a three hour radius of the park is the largest the company has ever had. The analyst expects to see this number increase due to China’s growing middle class, which is predicted to be 65% of the country’s urban population by 2022. Disney is expected to sell out on peak days, due in part to a convenient subway line and freeway from the center of Shanghai to the park. Another factor contributing to likely high sales is efforts to limit weather risk by operating 40% of the park indoors.
The analyst also emphasizes the lower costs Disney will encounter in its Shanghai park. Its ticket price to employee compensation ratio is the lowest in any Disney park and he expects the park to have the highest margin for a Disney park “assuming a ratio of other opex to labor costs in the zip code of other parks.”
Crockett expects first year attendance to be 12.3 million with revenues of $1.5 billion, which Disney will retain half due to its “43% equity stake and 70% of the park’s management fee.” Within two years, the analyst predicts that Disney will have the initial gate up to full peak capacity of 65,000 per day. He then expects “capacity to double with a second gate, and to increase again with a third gate a few years later, moving operating margins towards 40% long term.”
The analyst has a long term bullish view on Disney due to his opinion that the Shanghai Disney park will bring in more profit than expected coupled with a positive debut for Finding Dory. According to the analyst, these factors will offset “higher initial Shanghai start-up costs in the July quarter”, despite a $90 million write off for Alice Through the Looking Glass.
Crockett gave Disney an Outperform rating with a price target of $111, marking an 11.5% increase from current levels. Barton Crockett has a 49% success rate recommending stocks with a 6.3% average return per recommendation.
According to TipRanks, out of the 18 analysts who have rated the company in the past 3 months, 67% gave a Buy rating and 33% gave a Hold rating. The average 12-month price target for the stock is $114.82, marking a 15.32% upside from current levels.