Inside the Market’s roundup of some of today’s key analyst actions.
Shares in Apple Inc. are weaker again today, trading below the $400 (U.S.) mark to their lowest levels since 2011. A fresh report from BMO Nesbitt Burns is only feeding the selling frenzy.
BMO analyst Keith Bachman says that rival Samsung has not only caught up to Apple in the high-end smartphone market, but will likely outgrow Apple this year among that segment.
He reduced his earnings per share estimate for Apple’s fiscal year 2013 to $41.24 from $43.44. If true, that would actually mark a rare decrease in year-over-over earnings for Apple – last year it posted earnings per share of $44.15. The consensus forecast is for earnings per share of $43.74.
For fiscal 2014, he cut his earnings per share estimate to $45 from $52.20.
Mr. Bachman tied his lower forecasts to meetings BMO had with wireless service providers around the world and store checks it conducted in Europe, the United States and Canada.
Mr. Backman believes the mid-tier smartphone segment will grow faster than for high-end units. That could potentially benefit Apple, in the event Apple introduces new mid-tier iPhones, but could also pressure margins. One promising sign for Apple is that, even when including mid-tier iPhones in his fiscal year 2014 estimates, he doesn’t see gross margins falling below 35 per cent.
“Broadly speaking, we think Apple faces a choice between pursuing growth vs. preserving margins,” Mr. Backman said in a research note.
Target: Mr. Backman cut his price target to $460 (U.S.) from $580 and reiterated an “outperform” rating. The average price target among analysts is $587.84 (U.S.), according to Bloomberg data.
RBC Dominion Securities analyst John Barnes downgraded FedEx Corp. to “underperform” from “sector perform,” warning that the company is losing its earnings power over both the near and long term.
He notes that Fedex’s fiscal third quarter results were severely impact by customers “trading down” across its product segements – for instance, sending more packages to ground delivery rather than express. Mr. Barnes believes there is no quick fix to this problem.
“We are becoming increasingly concerned that FDX is in jeopardy of not attaining the full amount of the $1.7-billion in long-term profit improvement the company outlined at its analyst day in October 2012 as the trade down among product types has been far more severe than anticipated,” he said.
Target: Mr. Barnes cut his target to $87 (U.S.) from $100. The average target on the Street is $114.68.
RBC’s Mr. Barnes, however, upgraded FedEx rival United Parcel Service Inc., believing its share buyback plans and contract negotiations with the Teamsters union will lift its stock price.
UPS enjoys an amicable relationship with its union, as employees have good salaries and benefits, so it’s unlikely the new contract will have a negative impact on margins, he said.
Meanwhile, UPS has significantly upped its plans to return cash to shareholders.
“While these share repurchases will not be overly accretive (about 3 per cent), we point out this is not a discretionary repurchase designed to support the stock, but a planned return of cash to shareholders. As such, we believe UPS has entered the market as a major buyer of its stock, which bodes well for its stock price over the near term,” he said.
He now rates UPS “outperform” instead of “sector perform.”
Target: Mr. Barnes raised his price target to $100 from $80. The average Street target is $91.57.
Cantor Fitzgerald analyst Rob Chang cut his price target on Cameco Corp. by 18 per cent as he revised lower his forecasts on several commodities, including uranium.
He now sees spot uranium averaging $46.18 (U.S.) per pound this year, down from an earlier forecast of $52.50. He also cut his gold forecast for gold this year by 11 per cent to $1,633 an ounce and for silver by 13 per cent, to $30.53 per pound.
Mr. Chang emphasized that Cantor Fitzgerald remains bullish on the uranium sector, as the supply and demand fundamentals continue to be robust while the spot price hovers above the marginal cost of production.
“With the pending privatization of Uranium One, Cameco will be the only uranium-focused producer in the world with a market capitalization that is greater than $1-billion (currently at $7.4-billion). Combined with its status as the bellwether uranium company operating in the high grade Athabasca Basin, we believe Cameco is the preferred investment of choice for investors looking for exposure in the uranium space,” he said.
Target: Mr. Chang cut his price target on Cameco to $25 (Canadian) from $30.50 and reiterated a “buy” recommendation. The average target is $26.65.
RBC Dominion Securities analyst Jason Arnold reiterated an “underperform” rating on American Express Co., even though the company’s first-quarter earnings per share beat market expectations.
He notes that total revenue figures, which declined 3.2 per cent from the previous quarter, were largely disappointing, and the company’s shares are “richly valued” in relation to the return on equity RBC expects Amex to generate in the year ahead.
“Competition at the upper-end of the card space is high, so we remain concerned that expense controls will be difficult to maintain, and revenue growth will suffer as well – unless macro improves more meaningfully,” Mr. Arnold said.
Target: Mr. Arnold raised his price target by $1 to $54 (U.S.). That's well below the average target of $68.65.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities