Inside the Market’s roundup of some of today’s key analyst actions
Pierre Ferragu of New Street Research says that consumers are stretching out the use of smartphones, and so far Apple Inc. has “mastered” the trend. That should change in 2019, he says, and he’s cut his rating on the stock to “sell,” with a US$165 price target versus Friday’s close of US$213.32.
“The iPhone X has been very successful and well received by consumers. It has been so successful, that we think it has brought forward demand, over a structurally declining trend, as refresh cycles elongate. As a result, we expect material disappointment in 2019. Demand brought forward this year will drive an “air pocket”, and the introduction of a lower-price premium OLED phone won’t be enough to make up for the shortfall.”
Mr. Ferragu expects iPhone revenue to decline 8 per cent in 2019, versus analyst consensus expecting 1 per cent growth. That puts his 2019 earnings-per-share estimates 9 per cent below consensus. “History shows the stock doesn’t like these moments,” he says, and he expects Apple’s price-to-earnings multiple to compress by 25 per cent to 12 times 2020 EPS.
Analyst Troy MacLean of BMO Nesbitt Burns Inc. raised his target price on InterRent REIT to $12.50 from $11.75 while maintaining his “outperform” rating. The stock closed at $11.59 Friday.
Mr. MacLean increased his estimate of the REIT’s net asset value to $10.50 from $9.75 and continues to base his target on a 20 per cent premium to NAV. He says the REIT, which owns apartment buildings in Ontario and Quebec with more than 9,000 suites in total, reported record rent increases in the second quarter, and the gains “appear to be accelerating.” The company recently raised $115 million and plans to use $86 million of it for acquisitions in Montreal and the GTA.
Tesla Inc shares fell nearly 4 per cent on Monday as a $113 cut in JPMorgan Chase’s price target for the electric carmaker added to growing doubts among market players about a plan to take the company private.
Slashing its price target for Tesla Inc from $308 to $195, the brokerage said it did not believe Chief Executive Officer Elon Musk had funds for a plan announced by a tweet that said “funding secured” two weeks ago.
Analysts from the U.S. bank had upped its forecast from $198 to $308 after a roughly $100 surge in Tesla stock following Musk’s tweets on Aug. 7 and the note on Monday was the latest evidence of skepticism about the deal on Wall Street.
People familiar with the matter said on Sunday that PIF, the Saudi Arabian sovereign wealth fund that Musk says had been pressing to help fund the buyout, is in talks to invest in aspiring Tesla rival Lucid Motors Inc.
“Our interpretation of subsequent events leads us to believe that funding was not secured for a going private transaction, nor was there any formal proposal,” JPMorgan analyst Ryan Brinkman wrote in a client note.
“Tesla does appear to be exploring a going private transaction, but we now believe that such a process appears much less developed than we had earlier presumed, suggesting formal incorporation into our valuation analysis seems premature at this time,” Brinkman said.
JPM now targets the stock, which it continues to value at underweight, back at $195, versus Friday’s close of $305.50. The median price target of the Wall Street analysts covering Tesla is $336.
Tesla shares touched a three-month low of $285 in premarket trading before recovering to trade around $290, reducing its market value back below that of General Motors as the biggest U.S. carmaker.
An interview with the New York Times, in which Musk said he was under major emotional stress in the “most difficult year” of his life, on Friday added to investors’ concerns over his leadership after a series of social media spats.
A person with direct knowledge of the matter told Reuters last week that the SEC has opened an inquiry related to Musk’s tweets on the buyout and the billionaire is also facing a class action suite from investors who lost money in the share moves.
“The lack of process to (Musk’s) announcement has now caused governance and competency concerns which are starting to snowball,” said Tigress Financial Partners analyst Ivan Feinseth.
The buzz at Constellation Brands Inc. is too much for analyst Pablo Ernesto Zuanic of Susquehanna Group, who has cut his rating on the spirits company to “sell.” That makes him the only analyst on the street with that rating, Reuters reports.
Mr. Zuanic says Constellation’s 25 per cent premium to peers is unjustified, given concerns about performance at the company’s beer unit and acquisition risks at the company. Constellation said last Wednesday it would invest US$4 billon in cannabis company Canopy Growth Corp.
Investors reacted poorly, shaving roughly 10 per cent off Constellation’s shares, with the stock dipping below US$200 by the end of last week. Mr. Zuanic’s new target price is US$171, the lowest on Wall Street and well below the average of US$255. Of the 21 brokerages covering the stock, 17 rate Constellation a buy, 3 a hold and 1 a sell. Reuters says.
Analyst Rahul Paul of Canaccord Genuity upgraded New Gold Inc. to “hold” from “sell” on recent stock-price declines. He’s maintaining his $1.50 target price. The shares, which topped $2.50 just a month ago, closed Friday at $1.32.
“While there are no changes to our valuation, we believe the share price decline (down 45 per cent, underperforming the S&P/TSX Gold Index by 15 per cent) creates a more balanced risk-reward trade-off, particularly for longer-term investors with a bullish outlook for gold,” he writes.
Mr. Paul says he remains cautious about New Gold because its most recent plan for its Rainy River mine still suggests operational risks, high costs and limited free cash flow that “weaken[s] the overall investment appeal of the company.”
New Gold currently trades at 0.48 times its net asset value, a 25 per cent discount to the large-cap producer average. “We believe the discount is justified,” he says.
Analyst Jamie Cook of Credit Suisse still calls Deere & Co. her top pick in the machinery sector, but she’s trimmed her estimates after the company’s earnings call last week. Deere missed analysts’ consensus by 6 per cent due to higher costs for materials and freight. Ms. Cook’s decision to knock five US cents off her current-year estimate, 20 US cents off next year’s, and 50 US cents off 2020 yields a new target price us US$221, down from US$231.
Why are the shares still “outperform” in her view? She says Deere’s commentary on 2019 early orders suggests the company is slightly ahead of last year on combines and sprayers. Tractor orders are also ahead, “suggesting the 2019 [North American] farm market is expected to improve [year-over-year] despite concerns over trade Uncertainty.”
In other analyst actions Monday:
* Ascendant Resources Inc : Eight Capital raises target to C$1.20 from C$1.10
* Atico Mining Corp : Eight Capital cuts price target to C$0.75 from C$0.90
* Just Energy Group Inc : Canaccord Genuity cuts price target to C$4.50 from C$5.25
* Maricann Group Inc : Canaccord Genuity cuts price target to C$3.75 from C$4.25
With files from Reuters