Rosenbaltt says market volatility is an opportunity for Apple to acquire Disney
Shares of Apple (AAPL) moved higher on Friday after Wells Fargo upgraded the stock to Overweight, saying the shares at current levels offer a compelling risk/reward for investors. Meanwhile, a Rosenblatt analyst made his case for an Apple acquisition of Disney (DIS), saying the recent selloff has created an attractive entry point for putting the tech giant's cash to work.
WELLS FARGO 'STEPS IN': Wells Fargo analyst Aaron Rakers upgraded Apple to Overweight from Equal Weight with an unchanged price target of $315. While it remains difficult to gauge the fundamental impact Apple may realize from the COVID-19 outbreak, the shares at current levels offer a "compelling risk/reward for long-term patient investors," Rakers told nvestors in a research note partially titled "Stepping In Here." The analyst thinks Apple can drive earnings back to $15 per share and sustain $40B-plus per year in free cash flow.
While Rakers admitted that the COVID-19 outbreak situation understandably draws concern now, he’s encouraged by signs that production issues seem to be improving more quickly than expected with Apple’s Asia supply chain. He sees room for the company to accelerate its transition to becoming net-cash neutral over time due to the company’s strong cash position and free-cash flow.
APPLE COULD CONSIDER BUYING DISNEY: Rosenblatt analyst Bernie McTernan on Friday listed some of the reasons why he believes Apple should buy Disney, arguing that the recent market selloff has created an attractive entry point for putting cash to work, and Disney shares are down 34% since the beginning of the COVID-19 volatility. McTernan wrote that he believes "those with long time horizons, like megacap companies with large cash balances and whose equity outperformed Disney over the last three weeks, like Apple, could take advantage of the volatility." The analyst said Disney+ could help boost Apple's TV+ streaming service, which he sees as off to a slow start. With the closing of the parks announcement, the analyst believes "we are closer to the end than the beginning of the Disney sell-off."
McTernan lowered his price target on Disney to $140 from $180 and kept a Buy rating on the shares. The analyst also cut Disney's fiscal 2020 adjusted earnings estimates by 11% to account for the parks closing in the U.S. and France. However, McTernan's estimates for fiscal 2022 and beyond are roughly unchanged, and he said he continues to see Disney as well positioned as the media industry migrates towards streaming.
APPLE'S MEDIUM-TERM DEMAND PROFILE 'UNCERTAIN': Meanwhile, Cowen analyst Krish Sankar also issued a note on Apple on Friday. The analyst assessed the downside risks to earnings and valuation following the company's pre-announcement. The analyst said his checks suggest the near-term supply chain recovery is on track but the medium term demand remains uncertain. He said that based on his worst case scenario, he can see revenues down 3% but the shares could have 15%-20% downside based on valuation. Sankar maintained an Outperform rating and $370 price target on Apple shares.
WHAT'S NOTABLE: On Thursday, KeyBanc analyst John Vinh noted that his latest carrier survey indicated that Apple iPhone shipments to carrier stores have been materially disrupted by the coronavirus outbreak in China. iPhone sell-through was adversely impacted by supply issues, particularly on the Pro/Max models and by lower foot traffic in outbreak areas, such as Seattle, San Francisco, and the U.K, he added. Wedbush analyst Daniel Ives said that a surge of strategic and financial buyer driven M&A could be on the horizon over the coming months as valuations start to reach levels which can ignite a long overdue deal frenzy that could start to put a floor on the software sector as well and that Apple and others remain clear "stand out" names to own at these levels even in a downtick in the economic environment.
Apple AirPods shipments could increase by 50% in 2020 on a year-over-year basis to 90M sets, according to sources within Apple's supply chain cited by DigiTimes. Meanwhile, Apple Insider reported that Terry Gou, the chairman of Apple supplier Foxconn (HNHPF), said the company's return to full production has "exceeded expectations" after extended coronavirus disruptions. Gou also said that supplies to its facilities in China and Vietnam had now returned to normal, though he still has "concerns" over the supply chains in South Korea and Italy, which produce important electronic components like memory chips and display panels and are seeing their own serious COVID-19 outbreaks.
PRICE ACTION: In late morning trading, Apple shares jumped 4.5% to $259.40.