Citing greater confidence in next year’s 5G iPhone cycle, Raymond James analyst Christopher Caso upgraded both Apple (AAPL) and Skyworks (SWKS) to Outperform. Not as bullish on Skyworks, Barclays analyst Blayne Curtis downgraded the stock to Equal Weight this morning, citing near-term risk to estimates as he believes Huawei was not taken fully out of September quarter projections by analysts.
BUY APPLE, SKYWORKS: In a research note to investors, Raymond James' Caso upgraded Apple to Outperform from Market Perform, citing greater confidence in next year's 5G iPhone cycle. Since Apple has settled with Qualcomm (QCOM) and decided to use its modem in the 2020 iPhone, his checks have suggested that Apple has decided to offer 5G across the iPhone product line, including in its lower priced "R" models, the analyst contends, adding that "a reasonably priced 5G phone will be a very compelling" reason to upgrade.
Among chip suppliers, Caso believes Skyworks stands to gain the biggest incremental benefit from a stronger iPhone cycle and upgraded Skyworks shares to Outperform from Market Perform. The analyst has a $250 price target on Apple shares and a $90 price target on Skyworks shares.
MOVING TO THE SIDELINES ON SKYWORKS: Meanwhile, Barclays’ Curtis downgraded Skyworks Solutions to Equal Weight from Overweight, while raising his price target on the shares to $80 from $75. The analyst told investors in a research note of his own that he sees near-term risks to estimates as Huawei was not taken fully out of September quarter numbers. Longer-term, Curtis also has concerns about Skyworks' growth potential given its high exposure to Apple "into a lackluster cycle" as well as the "lagging" Android performance of Android. Further, the 5G "tailwind" only adds a few dollars of content per phone, and the environment is more competitive given the lack of acoustic filters, the analyst contended.
Curtis also downgraded Qualcomm to Equal Weight from Outperform and lowered his price target on the shares to $75 from $90.
WHAT'S NOTABLE: Sensor Tower released on Wednesday its estimate of total App Store revenue for the second quarter at up 18% year-over-year, Deutsche Bank analyst Jeriel Ong told investors in his own research note. With this data in hand, the analyst estimates that Apple's portion of this App Store revenues is likely 25%-30% of gross revenues, thus about $3.2B-$3.9B of his $11.6B June quarter Services revenue estimate. Sensor Tower data indicates that App Store growth, "while solid at its size," will likely continue to be a drag on Apple's overall Services revenue growth, Ong contended. He believes Apple's growth will increasingly have to come elsewhere in the second half of 2019 if the company is to maintain a greater than 20% year-over-year growth rate in 2019. The analyst reiterates a Hold rating and a $205 price target on Apple's shares.
PRICE ACTION: In afternoon trading, shares of Apple and Skyworks have gained about 1% each, to $204.69 and $81.04, respectively.
"Street Fight" is The Fly's recurring series of exclusive stories that highlight a stock or sector that is in focus amid divergent views from Wall Street analysts.
Apple
+1.45 (+0.71%)
Skyworks
+0.85 (+1.06%)
Qualcomm
-1.08 (-1.43%)