Forget The Selloff, Nomura Continues To Buy Apple And Facebook

• Apple Inc. AAPL shares are down 12 percent since December 15, while shares of Facebook Inc FB have lost 9 percent.
• Nomura analysts maintained Buy ratings for both companies.
• Checks indicate more positive outcomes, the analysts said.

Apple

Analyst Jeffrey Kvaal has a price target of $145 for the company. He wrote that while the supply chain news was “impossible to ignore,” demand checks indicated only marginally lower y/y volumes.

Apple’s ongoing market share gains suggest a return in growth, and the inventory concerns appear transient, Kvaal stated. He elaborated that distribution and carrier checks suggested US and European declines of 5-10 percent each, while China growth of about 10 percent.

“We believe the primary weakness is existing subscribers are not upgrading to the 6s as hoped,” the Nomura report noted. The iPhone 6 seems to be at least in-line with plan, and there appears to be continued migration of users from Android to the iOS ecosystem.

The F1Q/2Q sell-in estimates have been reduced from 77mn to 75mn and from 61mn to 54mn, respectively. This translates to 0-5 percent y/y sell-through declines and 3-5mn or about one week of excess inventory in the channel.

“We believe Apple’s iOS subscriber data is less competitively sensitive vs. Android than in the past,” Kvaal wrote.

Facebook

Analyst Anthony DiClemente has a price target of $120 for the company. Facebook is schedueled to report its 4Q earnings on January 27. While Instagram ad load is scaling, checks with digital marketing firms indicated that the platform made a significant revenue contribution.

The checks also suggested modest acceleration in y/y core-Facebook US ad growth, DiClemente stated.

The revenue estimates for 4Q and 2016 have been raised to $315mn and $1.75bn, respectively, to reflect strength in Instagram and inclusion of Oculus. The EPS estimate for FY15 has been raised from $2.17 to $2.18.

While expense guidance could be higher than expected, the associated upside to revenue leaves the EPS estimate for the year unchanged at $2.85, the analyst commented.

Moving past 4Q, investor focus could center on 2016 opex guidance and Oculus, DiClemente said.