UBS cuts target on Apple on consumer shift to cheaper phones

Inside the Market's roundup of some of today's key analyst actions

UBS analyst Steven Milunovich has sliced his earnings estimates and price target on Apple Inc., citing a new survey that found consumers are shifting to cheaper iPhones with less memory.

The survey from Consumer Intelligence Research Partners found that demand for storage has declined from 30 gigabytes with the 4S model to 20 GB for the iPhone 5, with fewer consumers opting for the 64 GB model.

As a result, the average selling price for an iPhone may be trending lower - not a plus when it comes to margins.

"We expect a 2-6 per cent year-over-year decline in iPhone average selling prices the next three quarters. As a result, we have shaved one point off our full-year gross margin (estimates) to 39.4 per cent, with a high of 40.7 per cent in September," Mr. Milunovich said in a research note today.

He thinks Apple stock, which has been taking a drubbing of late, "might not be out of the woods yet." He forecasts both December and March quarter earnings per share to be down year-over-year, followed by double-digit growth in the second half and for the full fiscal year of 2014.

"Still, we maintain our buy rating in the belief that risk-reward is favourable given improving growth, a China Mobile deal by calendar fourth quarter, and skepticism about innovation," he said.

He reduced his fiscal 2013 earnings per share to $44.68 from $47.00 and fiscal year 2014 EPS forecast to $52.80 from $55.85.

Upside: Mr. Milunovich cut his price target by $50 to $650 (U.S.).

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Canaccord Genuity analyst Phil Skolnick downgraded Canadian Natural Resources Ltd. to "hold" and removed it from the firm's "focus list" - stocks that are its best investing ideas.

He's concerned about continued volatility in differentials between Canadian heavy oil and lighter crude produced in the U.S. About 45 per cent of Canadian Natural's estimated 2013 production will be in heavy oil, he notes.

Upside: Mr. Skolnick cut his price target by $2 to $35.

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Perseus Mining Ltd. is facing headwinds on several fronts, in both Ghana and the Ivory Coast, and should see flat production for the next two years, said CIBC World Markets analyst Cosmos Chiu. He downgraded the stock to "sector performer," commenting that some key issues regarding production and tax issues need to be resolved before Perseus becomes more attractive as an investment.

Upside: Mr. Chiu also cut his price target to $2.80 from $3.50.

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CIBC World Markets analyst Robert Bek has turned more bullish on Shaw Communications Inc. thanks to a number of developments, including improved cable valuations, a recent earnings-boosting deal with Rogers, and "renewed focus on value recovery."

"In the past several months, cable shares across North America have rallied 10.5 per cent on average, with Shaw likely to see further gains on the back of this renewed improvement in industry tone," Mr. Bek said.

Upside: Mr. Bek raised his price target by $3 to $26 and maintained a "sector outperformer" rating.

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Desjardins Securities analyst Keith Howlett is feeling more upbeat about Rona Inc. after the retailer agreed with its two largest shareholders to significantly revamp its board, including expanding its size as well as naming eight new members.

"Our view is that this opens the door to all options that will surface shareholder value, foremost of which is likely to be the divestiture of selected operations outside of Quebec," he said.

Upside: Mr. Howlett raised his price target by $1 to $12 and maintained a "hold" rating.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities