Table of Contents
- 1 Bear of the Day:
- 2 Quarterly Details
- 3 The Technical Outlook
- 4 Additional content:
- 5 Pandemic Puts Ride-Sharing Duopoly to the Test
- 6 Lyft’s Upcoming Earnings
- 7 Uber Opportunity
- 8 Grubhub Snub (Best-Case Scenario)
- 9 Postmates + Uber Synergies
- 10 Final Thoughts
- 11 Just Released: Zacks’ 7 Best Stocks for Today
- 12 Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that have beaten the market more than 2X over with a stunning average gain of +24.3% per year.
Chicago, IL – August 10, 2020 – Zacks Equity Research Shares of Apple Inc. AAPL as the Bull of the Day, Planet Fitness, Inc. PLNT asthe Bear of the Day. In addition, Zacks Equity Research provides analysis onUber Technologies, Inc. UBER Lyft, Inc. LYFT and Grubhub Inc. GRUB.
Apple delivered impressive results on July 30 and the investor reaction said it all as shares vaulted above $400 for the first time and just kept going, exceeding many analyst revised price targets within hours on the final day of the month.
I’ll give detailed commentary on those analyst views — including the ones who always had it right, versus those who are just admitting they missed the persistence of this consumer-tech-ecosystem juggernaut.
First, let me share notes from my colleague Ben Rains last week…
Apple’s quarterly results easily topped estimates, with sales up 11% and adjusted earnings up 18%. And iPhone revenue popped 2% to crush projections, despite the broader economic downturn and lockdowns that forced it to close many stores.
On top of that, Mac and iPad sales jumped 21% and 31%, respectively. The firm attributed some of this growth to the need for people to work remotely and connect during these uncertain times.
AAPL’s wearables unit, which includes its smartwatch and popular wireless headphones, jumped over 17%, while services climbed 15%. This growth helps showcase how vital expansion beyond the iPhone is for the company. Apple now has revenue streams coming from its massive App store, as well as its various subscription services such as Spotify competitor Apple Music, its streaming TV service, news offering, video gaming, and more.
In fact, Apple’s paid subscriptions grew by more than 35 million sequentially to reach over 550 million across its various services, up 130 million from the year-ago period. And executives said on its earnings call that they remain confident Apple will hit its increased target of 600 million paid subscriptions before the end of the 2020 calendar year. Apple also grew its revenue across all of its geographic segments.
The ability for a high-end consumer tech firm to lift its sales by 11% to a whopping $60 billion in the heart of a global pandemic and economic crisis might be all some investors need to know.
Ben summed it up beautifully right there. But many investors want to dive into the numbers of trending segments and hear what the analysts are projecting for future sales and profit growth.
Because while many newbie investors are excited about the 4:1 stock split, the real story is how the Apple ecosystem continued to diversity beyond the iPhone and clobbered sales estimate projections in almost every category…
Apple Q3 Wearables, Home, Accessories sales $6.45B vs. $5.53B last year
Apple Q3 iPad revenue $6.58B vs. $5.02B
Apple Q3 Mac revenue $7.08B vs. $5.82B last year
Apple Q3 iPhone revenue $26.42B vs. $25.99B last year
Apple Q3 Services sales $13.16B vs. $11.46B last year
Apple CEO Tim Cook said on the earnings release, “Apple’s record June quarter was driven by double-digit growth in both Products and Services and growth in each of our geographic segments. In uncertain times, this performance is a testament to the important role our products play in our customers’ lives and to Apple’s relentless innovation. This is a challenging moment for our communities, and, from Apple’s new $100 million Racial Equity and Justice Initiative to a new commitment to be carbon neutral by 2030, we’re living the principle that what we make and do should create opportunity and leave the world better than we found it.”
CFO Luca Maestri described the challenges thus, “Our June quarter performance was strong evidence of Apple’s ability to innovate and execute during challenging times. The record business results drove our active installed base of devices to an all-time high in all of our geographic segments and all major product categories. We grew EPS by 18 percent and generated operating cash flow of $16.3 billion during the quarter, a June quarter record for both metrics.”
Before I share analyst views and price targets, I want to emphasize a couple of items about what you are about to witness…
1. Investment banks analysts use quantitative models (in Excel spreadsheets) to calculate both business growth and their DCF (discounted cash flow) price targets based on their estimates for segment/unit sales, costs and subsequent profits.
2. Investment bank analysts have many hard-to-see conflicts within their firm and within themselves. This matters for smaller companies. But for monoliths like AAPL, they have learned in the past 5 years to be basically afraid to stick their necks out in case we get a quarter of big declining sales in iPhones.
3. The i-bank analysts who already had $400 price targets and bumped them further are just playing the game better than the others. They see the ecosystem of apps and services evolving and don’t get too scared by any single quarter of declining iPhone sales because they know they are riding a long-term wave of excellence in consumer marketing and demand as the installed base of Apple devices drives new revenues in services and other subscriptions.
4. Do not chase i-bank analyst price targets here. Know what Apple is as a device-based ecosystem and understand why large investors have been piling into the stock even more so since COVID-19: They needed a safe, no-fail investment. A “bluest” of the blue-chop bonds, per se. And AAPL is it. It may remain thus.
5. All this said, the Apple ecosystem is a dominant consumer force and will continue to remain so despite any hiccups in iPhone sales, probably for years to come.
Cookers’ Bottom Line: If you are already an Apple products user and/or an investor, you are probably way ahead of i-bank analyst projections for the long-term. Stay long and strong!
But let’s listen in anyway on the details of the analyst views since their job is to parse and slice all the sales projections…
Piper Sandler analyst Harsh Kumar raised the firm’s price target on Apple to $450 from $310.
Whoa! That’s some catching up to do from Harsh! He explains that similar to last quarter, Apple did not provide September quarter guidance given the coronavirus uncertainty and variability in operations, but he can’t help but conclude that the business is “holding up extremely well, with the pandemic having little impact on the core business.”
Deutsche Bank analyst Jeriel Ong raised their price target to $440 from $400 as he says the positives in the June quarter outweigh the negatives and that he suspects Apple’s confidence that trends can continue into the September quarter “could understate the reality that they could in fact strengthen.”
Nice work, JO! You nailed the $400 target and now allow for further upside surprises.
Citigroup analyst Jim Suva raised the firm’s price target on Apple to $450 from $400 noting that Apple results were “amazingly strong especially considering the pandemic.” While management did not provide guidance due to COVID-19, it is clear Apple’s products and services are in “strong demand and the company is operating very well despite COVID-19,” says the analyst.
Raymond James analyst Chris Caso raised his price target to $440 from $400 and said Apple somewhat surprisingly admitted to new iPhone availability “a few weeks later” vs. last year, which Caso expects will serve to push iPhone revenue from the September quarter to December. Even this news couldn’t dissuade investors from pushing the stock to new highs.
Jefferies analyst Kyle McNealy raised his price target on Apple to $465 from $405 and said “let’s not overthink this,” arguing that the age of Apple’s installed base of devices gives it a solid set-up into the upcoming 5G cycle. He has raised his FY20 revenue and EPS projections to $275.7 billion and $13.10, respectively, while bumping up his FY21 forecasts to $327.6B and $16.65.
Credit Suisse analyst Matthew Cabral raised their price target to $380 from $340, keeping a Neutral rating on the shares following the company’s “impressive” quarterly results. Cabral says iPhone was a standout to the upside, coming in nearly 20% ahead of the Street and management expectations, and noted an improved trajectory in May and June across all products following a difficult April.
Of note, Cabral says he underestimated the resiliency of Apple and the relative importance of their wallet share for consumers amid a more challenging macro backdrop.
Barclays analyst Tim Long raised his price target on Apple to $400 from $326, keeping an Equal Weight rating on the shares. While noting that Apple beat thanks to upside in iPhone, iPads and Macs, while Services and Wearables, the Barclays analyst said “the hype segments, were basically in line and decelerating.”
The analyst also noted that although 5G was pushed out, the tone for iPhone “sounded optimistic” and while the iPad and Mac outlook “remains rosy” due to work-from-home demand, “we could see risk in future quarters.” Long believes Apple’s current multiple “fully reflects the upside in services and a 5G iPhone.”
RBC Capital analyst Robert Muller raised his price target to $445 from $390, citing iPhone demand that continued to top expectations and help drive an all-time high install base. Muller says the stock offers a favorable set-up heading into Q4 before a “significant” iPhone generation upgrade cycle, citing his increased confidence in Apple’s ability to drive recurring cash flows from its loyal customer base.
JPMorgan analyst Samik Chatterjee raised their price target to $460 from $425, notiing that the quarter “surprised even bullish expectations, hardly missing a beat,” even as several disruptions impacted its ability to operate retail stores successfully during the quarter. He raised his estimates “materially,” most notably for iPhone sales.
Canaccord analyst T. Michael Walkley raised their price target to $460 from $444, noting that Apple clearly is demonstrating during the pandemic the strength of its products and ecosystem with a return to year-over-year growth for iPhones and double-digit growth for Macs and iPads. Walkley believes the stock is compelling for long-term investors with the 5G upgrade cycle a potential benefit during 2021, especially as other hardware categories are growing double digits and a continued business mix shift towards high-margin services expands sales and profit growth opportunities.
BofA analyst Wamsi Mohan downgraded Apple to Neutral from Buy with a price target of $470, up from $420. Mohan observes that shares have experienced a rapid multiple expansion since June, while 2021 estimates have largely been unchanged in that time. With the stock trading at the highest premium to the S&P 500 in 10 years, he is concerned about risks to product gross margin pressure for the 5G iPhones, unit volume risk in case of higher average selling prices, tough comparisons in 2021 and pressure on services margins from content amortization costs.
Bernstein analyst Toni Sacconaghi provided another update since earnings: He says fiscal year 2021 could be a big year for Apple’s iPhones for two reasons: (1) materially weaker demand in each of the last two years, which has led to dramatically lower upgrade rates and pent up demand; and (2) a pushed out introduction of the new 5G iPhone from the end of fiscal 2020 to the beginning of fiscal 2021. Sacconaghi forecasts iPhone unit shipments to be about 230M in fiscal year 2021, up an estimated 20% from this year, resulting in 2021 revenues and EPS that are well above consensus.
Sacconaghi notes that upgrade rates remain well below fiscal years 2017 and 2018 levels, reflecting some “structural elongation of replacement cycles.”
Wells Fargo analyst Aaron Rakers raised the firm’s price target on Apple to $485 — a Street high among major i-banks — after recently completing a worldwide iPhone subscriber base survey.
Rakers’s survey found that 84% of iPhone owners are interested in upgrading their smartphones this cycle, despite the impact of coronavirus. His scenario analysis upgrade model based on the survey’s results leaves him to consider about 250 million plus iPhones being sold, well above his current 217M unit projections for 2021.
While Rakers appreciates that his survey is a very small end-user snapshot relative to an active installed base approaching a billion users, he thinks the results point to upside for the upcoming iPhone 12 cycle.
That’s the end of my parade of analyst views on AAPL.
Bottom line: Understand the vast ecosystem that Apple has created and will keep building with devices, software, and services and then buy the dips and hold for the long run.
Bear of the Day:
Planet Fitness reported weaker second-quarter 2020 results, as earnings and revenues both missed the Zacks Consensus. The top and the bottom lines also declined sharply year over year owing to the coronavirus pandemic.
Subsequently, the company has withdrawn its 2020 guidance due to the uncertainty tied to the crisis.
On August 4, Planet Fitness reported an adjusted loss per share of 32 cents, wider than the Zacks Consensus Estimate of a loss of 17 cents. In the prior-year quarter, the company had reported adjusted earnings per share of 45 cents.
Quarterly revenues of $40.2 million missed the consensus mark of $43.3 million by 2.5%. The top line also declined 77.9% from the year-ago quarter primarily due to the weak performance across Franchise, Corporate-owned Stores and Equipment segments.
Franchise revenues fell 70.8% year over year to $21 million. The Corporate-owned Stores segment’s revenues declined 76.3% year over year to $9.4 million. In the Equipment segment, revenues declined 86% year over year to $9.8 million owing to lower equipment sales to new and existing franchisee-owned stores.
Moreover, EBITDA in the Franchise segment declined 92.9% year over year to $3.5 million. The decline was primarily attributed to temporary shutdowns owing to COVID-19. At the Corporate-owned stores segment, EBITDA fell 135% year over year to ($6.3) million. EBITDA in the Equipment segment declined 92.2% year over year to $1.3 million.
Total adjusted EBITDA at the end of the second quarter deteriorated to ($9.3) million from $76.5 million in the year-ago quarter.
The Technical Outlook
My colleague Jeremy Mullin wrote about PLNT as the Bear of the Day in early May right before their Q1 report, as downward analyst estimate revisions ahead of that event had already taken the stock to the cellar of the Zacks Rank.
Here’s what he observed at the time when shares had bounced hard in April and were still trading near $60…
Planet Fitness is a Zacks Rank #5 (Strong Sell) that is one of the leading franchisors and operators of fitness centers. The stock fell over 70% after all the gyms in the country were closed due to COVID-19. However, with the potential for a reopen of gyms and the economy it bounced significantly, moving up over 170%.
Now that the run higher has stalled at technical resistance, it looks like the stock could fall again.
Overview of Company
The Hampton, New Hampshire company has over 14 million members and 2000 stores in 50 states. PLNT is valued over $5 Billion and has a Forward PE of 52. This high valuation gives the stock a Zacks Style Score of “F” in value.
The big issue the company faces is that its business is closed due to COVID-19. This obviously is hurting the company as it can’t collect the revenue from members that are typically going to the gym. The company has frozen all memberships in April, which means the quarter will essentially have no member revenue if they don’t open soon.
While there has been momentum for economies to open, gyms are tricky in a COVID environment. Investors should question whether people will feel comfortable going back to a place where sweat droplets are essentially everywhere.
The March lows brought PLNT down to $23.77 from $88.77 the month before. Those lows were a great buy, as the stock has rallied all the way to the mid-$60s in the recent weeks. However, the move has stalled at a 61.8% Fibonacci retracement, which happened to be lined up with the 200-day moving average.
The stock could find support around the $50 level, but a break of the recent momentum could bring the April lows of $40 into play.
(end of excerpt from Jeremy’s May 1 article)
Planet Fitness may become a routine again in workout enthusiasts’ lives, but right now the company numbers aren’t pulling their weight. When analysts have more visibility on gym membership sales and profits, their estimates may stop going down. The Zacks Rank will let you know.
Pandemic Puts Ride-Sharing Duopoly to the Test
The ridesharing duopoly got demolished this past quarter as the global quarantine kept customers and drivers at bay. Uber reported earnings last night, and it was as painful as analysts anticipated. Mobility bookings (aka ridesharing) were down 75% in Q2. The company was able to hedge its primary topline decline with a boom in its food delivery segment, which saw an over 100% increase in revenues.
Uber’s unique food delivery, Uber Eats, was a tremendous hedge for the business, and its recent acquisition of Postmates has strengthened its leading positioning in key markets. Uber’s food delivery hedge is one that its primary competitor cannot boast of.
Uber shares fell over 5% in today’s trading while its duopoly partner Lyft saw an over 8% decline. This is adding to the year-to-date performance divide that we’ve seen. You can see this over 37% stock performance deviation in my TradingView chart below (LYFT represented by candlesticks and UBER represented by the red line).
Lyft’s Upcoming Earnings
Lyft’s shares fell sharply today because of a larger ridesharing decline than conservative analysts anticipated in Uber’s Q2 report. Without the insulation of food delivery, the pure-play Lyft is overly exposed to the pandemic’s headwinds.
Lyft will be releasing its Q2 earnings after market close on Wednesday, August 12th, and analysts are projecting a disastrous quarter. According to Zacks Consensus estimates, EPS projections are sitting at -$1.56 on sales of $336.68 million, representing a year-over-year decline of 130% and 61%, respectively.
Considering Uber’s earnings last night, I think Lyft’s results could be worse than these already seemingly conservative estimates. Investors are pricing this pessimism into the stock today as the share price falls.
This pandemic has created a rapidly digitalizing economic environment. Food delivery services have been taking center stage amid the global pandemic with the stay-at-home initiative advancing the adaptation of this space by what would have taken years in only a matter of months.
The exploding food delivery space catalyzed my addition of Uberinto our Headline Portfolio as the company secures an attractive deal with the Millennial & Gen Z driven Postmates.
Uber is getting ready to break out of its $30 – $38 per share range that it has been trading in for the past three months after reaching a lucrative agreement to acquire Postmates. The $2.65 billion all-stock purchase of Postmates propels Uber Eats into a decisive #2 positioning in the rapidly consolidating food delivery market and gives them good positioning in the grocery delivery segment.
Grubhub Snub (Best-Case Scenario)
Uber’s bid for Grubhub fell through after the two firms couldn’t reach an agreement last month, and this was honestly the best-case scenario. Grubhub would have cost Uber more than double what it is paying for Postmates, and it would not have created the same Millennial-focused image that the enterprise is looking for. Grubhub has been losing market share to its competitors for years, and its share price has been illustrating its inability to compete.
Postmates is a younger business with an enormous amount of growth ahead of it. Once again, Uber’s shrewd management team proves its ability to navigate the highly uncertain market in which it operates.
Postmates + Uber Synergies
Uber’s management estimates that the acquisition will create $200+ million in run-rate synergies by the end of next year. Postmates will be bringing with it 115,000 restaurants, over 10 million loyal customers, and give Uber Eats a dominant positioning in critical markets like LA and Miami.
Investors and analysts are optimistic about the synergies that this acquisition will create for the combined firm, pushing UBER up 6% immediately following this acquisition announcement last month. This is an exciting anomaly for UBER traders and investors, as acquiring firms typically experience a share price drop after an acquisition announcement. The stock price rally illustrates that this deal was struck at a price that was far less than the combined enterprise’s anticipated synergies.
Uber Eats has been an excellent hedge for Uber’s overall business amid this pandemic. As ride-hailing revenues fell, food delivery sales surged. Postmates will not only support Uber’s proliferating food delivery service but its commanding position in the ridesharing business with its brand loyalty in the South and the West.
On a recent CNBC interview with Uber’s CEO, Dara Khosrowshahi, he explained Uber’s plan to become an everything delivery business from food to people. Postmates highly esteemed delivery platform will provide the business with an accelerated step in that direction.
The firm expects to reach profitability by next year, and Postmates is going to be a key component to making that expectation a reality.
I see Uber as an excellent buying opportunity, as these shares fall towards $30 per share. The long-term potential of this business is healthy, and these shares will see robust growth once people start heading back to work.
I think that Uber will see a tailwind once the economies fully open as more people utilize Uber’s leading ride-hailing service instead of exposing themselves to public transportation.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that have beaten the market more than 2X over with a stunning average gain of +24.3% per year.
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