Apple hit with price target cuts, but it’s still a Street darling

Share

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

More analysts are lowering their price targets on Apple Inc., but the Street remains a very bullish place right now for the maker of iPhones and iPads, even after the stock's harsh tumble of late.

J.P.Morgan analyst Mark Moskowitz sliced his target to $725 (U.S.) from $770. While Apple followers this week got spooked by indications that demand for the iPhone 5 may be waning, Mr. Moskowitz appears more concerned with the iPad. He cut his shipment estimates for the tablet, commenting that "our research indicates that near-term supply constraints impact iPad sell-in activity through the end of November."

BMO Nesbitt Burns analyst Keith Bachman, meanwhile, cut his price target to $640 from $670, concerned that near-term guidance from the tech superstar could disappoint. He has a suggestion on how Apple could supercharge its sales: sell a cheaper phone.

"At present, the $300 to $400 price smartphone market represents about 10 per cent of industry units shipped," he said in a research note. "Therefore, to be successful, we believe that Apple will need to grow the size of the mid-range category and pull new users up from lower-end competitor phones, while not cannibalizing its existing user base of high-end phones."

A lower-priced phone should increase operating income and grow earnings per share. But he also cautioned those benefits would have to be weighed against the resulting lower margins.

There have been rumours in recent days that Apple is testing a cheaper phone, but the company has not commented.

Mr. Bachman believes Apple will increase both dividends and share buybacks this calendar year, "and we believe that the current valuation is compelling, particularly when compared to our projected growth opportunities."

Apple shares at mid-afternoon Thursday were a little higher, up 27 cents at $506.36. Even with the handful of price target cuts this week, the average target on the Street right now is $726.21, according to Bloomberg data.

That suggests analysts, on average, believe the stock could rise more than 40 per cent over the next year. Some 52 analysts rate Apple as a buy, nine as hold, and two as a sell.

==========

Revenue and profit growth at Rogers Communications Inc. will gain momentum this year, driven by stabilizing voice revenues, greater data usage from its LTE network, a tightened upgrade policy and cost containment, said UBS Securities analyst Phillip Huang.

While Rogers will "inevitably" lose more TV share to Bell for the foreseeable future, he does not expect the new competition to have as adverse of an impact as it had on Shaw Communications Inc.

"Current promos/retention offers in RCI's footprint are more rational and consistent vs. previous Shaw/Telus pricing battles," he said in a research note. "We also believe RCI is less likely to repeat Shaw missteps on customer service and pricing. As such, we believe RCI's TV share shift can be managed in a consistent and predictable manner."

Mr. Huang also expects Rogers to announce a 10 per cent dividend hike and renew its share buyback program next month.

Upside: Mr. Huang raised his price target by $5 to $50 and maintained a "buy" rating.

==========

Even though Aecon Group Inc.'s shares have performed reasonably well over the last two months, TD Securities analyst Michael Tupholme still sees meaningful upside ahead.

The construction and infrastructure development company is likely to return to revenue growth in the fourth quarter and sales should continue to accelerate for the foreseeable future, thanks to a record backlog of work and strong prospects for additional contracts, he said.

Upside: Mr. Tupholme raised his price target by 50 cents to $16 and reiterated a "buy" rating.

==========

Paladin Labs Inc. is growing to become a global pharmaceuticals company, with a strong management team and an active acquisition strategy, said Canaccord Genuity analyst Neil Maruoka.

"While Paladin operates in a low growth industry, the company boasts a management team that has grown revenue at a 24 per cent compound annual growth rate over the past five years through effective execution of its M&A strategy," Mr. Maruoka wrote in a research note. "By leveraging its significant pricing power (and acquiring at much lower multiples than the stock trades), the company has been able to drive accretive acquisitions."

Upside: Mr. Maruoka rates the stock "buy" and has a $56 price target.

===============

Mullen Group Ltd. stock should rise after the company increased its annual dividend 20 per cent, to be paid monthly rather than quarterly, said Raymond James analyst Andrew Bradford.

"We forecast that the net impact of the dividend increase and capital spending budget will result in a cash build for Mullen through 2013 to approximately $145-million by the third quarter of 2013," said Mr Bradford. "We now calculate a payout ratio of 49 per cent of estimated 2013 cash flow and about 1/3 of estimated trailing cash flow. Indeed, if forced to surmise Mullen's dividend policy, we'd conjecture that the board sets its dividend at about 30 per cent of trailing cash flow."

Upside: Mr. Bradford raised his target price to $22.50 from $22 and rates the stock "market perform."

============

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