Supply concerns over Apple Inc. products have reared their ugly head again after an explosion last week at Foxconn Technology group’s Chengdu factory, which manufactures iPads.
The incident killed three workers and forced the facility’s closing for an undetermined period. It’s another blow for Apple, already contending with supply-chain difficulties arising from the Japanese earthquake this year.
Estimates by industry analysts of the impact on iPad production ranged from minimal to up to 2.8 million units in lost output - which would be equal to just over half the number sold in the first three months of this year.
But, according to Brigantine Advisors analyst Kevin Dede, investors shouldn’t have too much to fear. Apple has proven itself remarkably resourceful in the past for making up for such shortfalls.
“Clearly there is reason to be concerned given that March quarter iPad sales were depressed relative to demand and December quarter unit volume,” wrote Mr. Dede in a research report today.
“However, in light of the resourcefulness of Apple’s management team exhibited in securing component source bountiful enough to offer the guided expectations of $23-billion in sales (in the June quarter), we expect that Apple has redundant manufacturing contingency plans that should fall into place in response to the Hon Hai manufacturing problem in Chengdu. And should we be incorrect in this brazen assumption, one would think the company should have no issue rectifying manufacturing problems in subsequent quarters.”
His conclusion: the share price is reflecting near-term supply issues and not so much medium-term growth opportunities for the company.
Upside: Mr. Dede reiterated his “buy” rating and $400 (U.S.) price target.
Production costs were higher than expected at Pan American Silver Corp. in the first quarter because of inflationary pressures and lower by-product production. But Raymond James Ltd. analyst Brad Humphrey still recommends buying Pam American shares “given its strong balance sheet, impressive track record, valuation,” and because the market so far is giving little value to its Navidad project in Argentina. If mining restrictions are modified in the country, Navidad could double the company’s output by 2016.
Downside: Mr. Humphrey cut his target price to $50.50 from $54.30.
Cineplex Inc. should see double-digit growth in earnings before interest, taxes, depreciation and amortization over the next three quarters, driven by a turnaround in the box office starting in May and continued strength in its media division, said Canaccord Genuity analyst Aravinda Galappatthige. He recommends the stock, given its “very low-risk profile, meaningful growth” and attractive yield of 5.1 per cent off a relatively low payout ratio of 57 per cent.
Upside: Canaccord hiked its price target by $2 to $28.
RioCan Real Estate Investment Trust net operating income in the first quarter was hurt by higher amounts of space not generating rental payments, particularly in higher-priced units, noted TD Newcrest analyst Sam Damiani. He warned this “drag” on financial performance will slip into the second quarter.
Upside: Noting that the REIT has already seen considerable price appreciation, Mr. Damiani downgraded the stock to a “hold” from a “buy” and affirmed his price target of $26.
Valeant Pharmaceuticals International Inc. has announced another European acquisition, Lithuanian specialty pharma company AB Sanitas, for about $442-million (U.S.) and the assumption of $70-million in debt. "Sanitas has the potential to be an accretive and positive complement to Valeant's central European business," commented TD Newcrest analyst Lennox Gibbs.
Upside: Mr. Gibbs raised his price target by $2 to $60 "to reflect the increased certainty surrounding Valeant's near-term acquisition prospects."
Related: Valeant buying AB Sanitas of Lithuania
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