Apple iPhone 5c phones are pictured at the Apple retail store on Fifth Avenue in Manhattan, New York September 20, 2013.Reuters
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Wells Fargo analyst Maynard Um downgraded Apple Inc. to "market perform" from "outperform," believing that the tech giant's gross margins will soon come under pressure as consumers look ahead to the next generation of its iPhones.
Consumers tend to hold off purchases of existing iPhones ahead of the release of new models. There's speculation that Apple will announce plans for the iPhone 6 at some point this year, which could put pressure on sales of the iPhone 5s currently on store shelves.
"Our bullish thesis on Apple had been predicated on the expectation for gross margin expansion driven by the 5s cycle," Mr. Um was quoted as saying by StreetInsider.com. "While we still have conviction in the gross margin thesis (and the potential for iPad/iPhone unit upside), we believe this may be largely embedded into the valuation."
He cited a couple other concerns: limited market opportunity for existing Apple products, and a shift in the balance of power from manufacturers of handsets back to wireless providers.
Mr. Um maintained a $536 (U.S.) to $581 valuation range for Apple. The average price target among analysts is $595.73, according to Thomson Reuters.
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With its energy service division now stabilized, TransForce Inc. is back to executing on its acquisition strategy, announcing Monday it was buying Vitran Corp. in a $136-million (U.S.) deal.
"As such, we expect the increase in acquisition activity to continue and act as a positive catalyst," commented CIBC World Markets analyst Kevin Chiang. "Historically, TFI's share price has responded positively when a major acquisition is announced."
Energy services took a hit in 2013, but with profitability in TransForce's specialized services expected to improve and restructuring in its package and courier operations ongoing, there should be a step up in margins over the next two years, he said.
Mr. Chiang raised his price target to $28 (Canadian) from $25 and reiterated a "sector outperformer" rating. The average target is $26.40.
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Two U.S. real estate investment trusts are the subject of ratings downgrades by BMO Nesbitt Burns due to headwinds facing the U.S. health-care REIT sector.
Analyst Richard Anderson says elevated levels of construction activity (primarily assisted living and memory care), along with the prospects of rising interest rates will impact Health Care REIT and Ventas Inc. in a disproportionate way, given the higher income element to the stocks.
Mr. Anderson says both Health Care REIT and Ventas are "outstanding companies," but he believes their stocks will be out of favour for now and are fighting the perception of declining growth prospects as construction projects start competing for residents in mid-2014.
He downgraded both REITs to "underperform" from "market perform." Health Care REIT and Ventas Inc. have price targets of $49 and $52, respectively.
Mr. Anderson, however, upgraded two other U.S. REITs. Duke Realty Corp. was raised to "outperform" from "market perform" with an unchanged target of $18 (U.S.). And Liberty Property Trust was upgraded to "outperform" from "market perform," with the price target going up to $39 (U.S.) from $34.
Duke Realty is an industrial development REIT that's trading at a significant discount to peers, in part because of its aggressive development policies going into the last recession. But Mr. Anderson believes there's no reason to believe it will repeat those mistakes. Meanwhile, he thinks Liberty Property Trust has been unfairly punished by investors because its annual guidance has remained relatively flat over the past several years. But he said its quality of earnings and opportunity for real growth is much improved.
"Coupled with a strong balance sheet and a great senior management team, we think 2014 could be a breakout year for LRY," he said.
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Citigroup analyst Keith Horowitz expects big things from Bank of America Corp. and JPMorgan Chase $ Co. in 2014.
While both companies had strong showings in 2013 -- with returns of 35 per cent and 36 per cent, respectively -- Mr. Horowitz says the U.S. financial stalwarts are set to outperform their peers this year.
He says both stocks will be considered a play on a strong U.S. economy due to asset-sensitive balance sheets and exposure to the U.S. consumer.
Mr. Horowitz upgraded Bank of America to "buy" from "neutral" and raised his price target to $19 (U.S.) from $16. He raised JPMorgan Chase's target price to $72 from $66 while reiterating a "buy" rating and increased his fourth-quarter earnings estimate to $1.38 per share from $1.37 per share.
The average price target is $15.59 for Bank of America and $63.40 for JPMorgan.
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In other analyst actions:
Cowen downgraded Sprint to "market perform" from "outperform" but raised its price target to $8.25 (U.S.) from $7.50.
BMO Nesbitt Burns upgraded Duke Energy to "outperform" from "market perform" and maintained a $77 (U.S.) price target.
BMO Nesbitt Burns upgraded American Electric to "outperform" from "market perform" and raised its price target to $51 (U.S.) from $48.
Jefferies upgraded Urban Outfitters to "buy" from "hold" and called it a top pick for 2014. Its price target is $54 (U.S.).
Jefferies upgraded American Eagle Outfitters to "buy" from "hold" and maintained a price target of $19 (U.S.).
Jefferies downgraded Abercrombie & Fitch to "hold" from "buy" with a price target of $30 (U.S.).
Jefferies downgraded Aeropostale to "hold" from "buy" and slashed its price target to $7 (U.S.) from $12.
KeyBanc upgraded U.S. Steel to "buy" from "hold" with a price target of $37 (U.S.).
BMO Nesbitt Burns upgraded Avista to "market perform" from "underperform" and raised its price target to $29 (U.S.) from $26.
Cowen downgraded Uni-Pixel to "market perform" from "outperform" and cut its price target to $10 (U.S.) from $41.
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