Next week earnings are due out from several large tech companies, including rivals Google and Apple. Technology stocks have been on fire so far this year and analysts are optimistic about most companies’ earnings releases.
Key Earnings Reports
Next week investors will be waiting for several key earnings reports including Apple AAPL, Google GOOG, Yahoo YHOO and Facebook FB
Apple
Apple is expected to report first quarter EPS of $14.08 on revenue of $57.40 billion, compared to last year’s EPS of $13.81 on revenue of $54.51 billion.
The analyst team at Wells Fargo gave Apple a market perform rating on January 15. Wells Fargo said they expect to see Apple sales soar with the company’s new deal with China Mobile.
“WSJ reports that Tim Cook is very upbeat on the success of the China Mobile deal and expects sales in FQ1 2014 to be pushed to new highs in the region (FQ4 2013 sales of $5.7B), in part helped by the addition of China Mobile’s 3,000 sales locations. Ahead of the Friday (1/17) launch, China Mobile CEO Xi Guohua noted that millions of iPhones have been preordered--an indication of strong demand, in our opinion, and which should be boosted by generous subsidies China Mobile is reportedly offering. Note that yesterday (1/14), the WSJ reported that Apple’s manufacturing partner Foxconn shipped around 1.4MM iPhone 5s’s to China Mobile last week. Our view on China Mobile has not changed--we believe the deal is clearly positive for the company and would help to drive iPhone unit strength in FQ1 2014 as well as absorb seasonal slowing in FQ2 2014 at other carriers. The deal may also help initial iPhone 6 units if China Mobile is included in the launch in September. That said, the details of the agreement (pricing, margin, etc) are unknown and, thus, we believe gross margin bears watching. We maintain our view that FQ1 Street consensus of $14.03 is conservative and should rise to at least our $14.49 estimate (note every 1MM units results in roughly $0.22 EPS upside, all else equal). Our FQ2 EPS of $11.36 is also above the Street consensus of $10.89. However, we maintain our view that there is a limited amount of material market cap opportunity beyond our valuation range and believe the multiple will be dictated, in part, by the direction of its gross margin. We reiterate our Market Perform rating and valuation range of $536-581.”
On January 21, Morgan Stanley gave Apple an overweight rating, saying they expect strong December results and continued growth in the future.
“WSJ reports that Tim Cook is very upbeat on the success of the China Mobile deal and expects sales in FQ1 2014 to be pushed to new highs in the region (FQ4 2013 sales of $5.7B), in part helped by the addition of China Mobile’s 3,000 sales locations. Ahead of the Friday (1/17) launch, China Mobile CEO Xi Guohua noted that millions of iPhones have been preordered--an indication of strong demand, in our opinion, and which should be boosted by generous subsidies China Mobile is reportedly offering. Note that yesterday (1/14), the WSJ reported that Apple’s manufacturing partner Foxconn shipped around 1.4MM iPhone 5s’s to China Mobile last week. Our view on China Mobile has not changed--we believe the deal is clearly positive for the company and would help to drive iPhone unit strength in FQ1 2014 as well as absorb seasonal slowing in FQ2 2014 at other carriers. The deal may also help initial iPhone 6 units if China Mobile is included in the launch in September. That said, the details of the agreement (pricing, margin, etc) are unknown and, thus, we believe gross margin bears watching. We maintain our view that FQ1 Street consensus of $14.03 is conservative and should rise to at least our $14.49 estimate (note every 1MM units results in roughly $0.22 EPS upside, all else equal). Our FQ2 EPS of $11.36 is also above the Street consensus of $10.89. However, we maintain our view that there is a limited amount of material market cap opportunity beyond our valuation range and believe the multiple will be dictated, in part, by the direction of its gross margin. We reiterate our Market Perform rating and valuation range of $536-581.”
Google is expected to report fourth quarter EPS of $12.24 on revenue of $16.72 billion, compared to last year’s EPS of $10.59 on revenue of $12.16 billion.
On January 14, the analysts at Wells Fargo gave Google an outperform rating, citing both near and long term growth catalysts as their reasoning.
“We upgrade shares to Outperform from Market Perform based on a combination of near-, mid- and long-term catalysts and our belief Google is well positioned to benefit from the migration of brand advertising dollars online. We anticipate Google will strengthen its leadership position in the fight for brand budgets and raise 2013/2014 EPS from $43.82/$51.83 to $44.30/$54.41 and valuation range from $900-1,000 to $1,300-1,350.”
Also on January 14, Topeka Capital Markets gave Google a Buy rating with a $1,313.00 price target. The analyst team at Topeka attributed their positivity to the company’s long term growth potential after the company’s acquisition of Nest Labs.
“Google announced yesterday the acquisition of Nest Labs, a maker of smart thermostats and smoke and carbon monoxide detectors for the home, for $3.2B in cash. With this acquisition, Google is placing a bet that it can connect the more than 115mm homes in the U.S. and eventually millions more globally. Google is also making a bet on the Internet of Things (IOT) space with a strong brand with good intellectual capital, and a management team that is good at industrial design and has roots at Apple (APPL:-$535.73:NR). We see a longer-term opportunity for Nest Labs combined with Android and Google's Voice technologies and the embedded systems market.”
SunTrust also gave Google a buy rating in mid January, saying that the acquisition of Nest Labs could increase Google’s revenue by nearly $3 billion.
“We estimate Nest could add ~$3b of revenue to Google, or ~$1.3b to gross profit by 2017 assuming only a 5% penetration of homes for thermostats and smoke alarms. For our analysis, we assume ~115m homes conservatively with 1 thermostat and 2 smoke alarms per home and use current price points of ~$250 and ~$140 (See our sensitivity table on page 2). Further, we estimate the average payback for consumers through energy savings for a thermostat is <18 months.”
Morgan Stanley gave Google an overweight rating with a $1,172.00 price target in mid January, saying that the acquisition of Nest Labs would help Google open the door to technological home intergration.
“Google has agreed to acquire Nest Labs, a designer of “smart” internet-connected home thermostats and smoke detectors, for $3.2b in cash, or 6% of Google’s cash balance at the end of 3Q2013. Google may see Nest appliances as a convenient way to bring Google home automation to the mass market.”
Credit Suisse gave Google an outperform rating with a $1,450.00 target price on January 21st. The team at Credit Suisse said they believe Google has the best position in the tech space.
“We maintain our Outperform rating on GOOG shares and increase our DCF-derived price target to $1,450 from $1,200. We continue to view Google as one of the best-positioned in our space to benefit from the proliferation of connected devices and the ensuing lift in engagement. We therefore remain optimistic on Google's ability to sustain mid-teens revenue growth over the next few years. As previously noted, we view volume growth as a leading indicator of where Google’s top line growth can eventually head as pricing on mobile should eventually close the gap with desktop.”
Yahoo
Yahoo is expected to report EPS of $0.30, compared to last year’s EPS of $0.32.
SunTrust gave Yahoo a neutral rating in mid January, citing COO Henrique de Castro’s departure for the company as a major reason for their analysis.
“Yahoo! announced after the close that COO Henrique de Castro is leaving the company, and an internal memo highlights the bold decision by CEO Mayer. We assume he will retain rights to ~$40m in compensation for 2012 and the ~$20m in additional equity he was awarded when he joined. The exact terms of severance may be different. We think this is a great move by Marissa and a big positive for Yahoo! for 2 reasons: 1) We had long been hearing that de Castro was not meeting the expectations of Marissa and was not impressing advertising clients (this is part of the reason we were not surprised by the hiring of Ned Brody from AOL); 2) Since Henrique was one of Marissa's first big hires, many investors worried that she wouldn't have the fortitude to let him go even if he was under performing - we applaud Marissa and the Yahoo! board for making such a bold and difficult decision. Our industry contacts inform us that this was the right move.”
Nomura gave Yahoo a neutral rating with a price target of $40.00 on January 15, saying the company’s valuation is in line with expectations.
“While Yahoo!'s paid display ad volume has stabilized, price-per-ad continues to decline, driving down display revenue. We believe the next organic catalyst for the shares is a return to price-per-ad growth. In our view, CEO Marissa Mayer has done an admirable job playing the hand she was dealt, with both morale and product velocity improving at Yahoo! during her tenure. But with the value of YHOO’s stake in Alibaba probably well-understood, we await sustained display revenue growth before becoming more positive. Valuation Methodology: Sum-of-the-parts.”
Facebook is expected to report EPS of $0.21, compared to last year’s EPS of $0.09.
On January 15, Nomura gave Facebook a buy rating with a price target of $65.00, citing Instagram as a valuable catalyst for revenue.
“We believe that FB will remain the social media leader, benefiting from core tailwinds from the advertising economy, the most notable of which is demand for effective mobile ad products. Our positive outlook on FB is based on: 1) Core News Feed price-per-ad will increase at a faster rate than the Street expects; 2) Instagram represents a significant forward monetization opportunity; and 3) International user growth drivers far outweigh a slowdown in engagement among younger US teens.”
On January 22, Morgan Stanley gave Facebook an overweight rating with a $62.00 price target. The analyst team at Morgan Stanley noted that the company will likely gain momentum from the growth of Instagram and video.
“We expect Instagram to help mobile momentum given advertising launch during the quarter. We estimate Instagram could contribute about $255m in 2014, and nearly $500m in 2015, or around 4% of total ad revenue. A recent global survey from GWI Social indicated that the biggest rise in active users between 2Q and 4Q among social networks was led by Instagram (+23%). We model Instagram WW DAUs growing at 10% CAGR from 2014-2017, with potential for upside.”
On January 22, Goldman Sachs gave Facebook a buy rating with a $61.00 price target, citing growth in ad revenues for their positivity.
“We forecast total ad revenue of $2.16bn, versus consensus of $1.99bn and are looking for mobile ad revenue of $1.14bn, +29% qoq (Street: $984mn, +12% qoq). With our contacts reporting increasing mobile budgets and a significant uptick in CPMs we see upside risk to our above consensus mobile forecast. For CPMs, we’re modeling 46% growth yoy (flat qoq) to $0.31. Conversations with our field contacts suggest that we should see considerable upside to our CPM forecast (many cited growth in the 20-40% qoq range). At the same time, we are forecasting 12% yoy growth in ad impressions which could be slightly high based on the lowering of the auction floors in the year-ago period, driving tough comps. Nonetheless, we see CPM upside as easily offsetting any shortfall in impression growth. Looking out to 1Q14, we forecast ad revenue to decline 8% qoq to $2.00bn, +60% yoy vs. consensus at -6%to $1.88bn (+51% yoy). We are modeling 1Q14 mobile ad revenue of $1.09bn, -4% qoq, compared with consensus of $1.03bn, +4% qoq. Just as we expect upside to our total and mobile ad forecast for 4Q13, we see the risk for a bigger qoq decline in segment revenues than what we are currently modeling for 1Q14 but with Street estimates still expected to move higher.”
Economic Releases
GDP data will be the star of the economic calendar next week as investors try to anticipate central banks’ decisions at upcoming meetings. Specifically, US and eurozone GDP will be closely watched as both central banks are expected to make policy changes in the near future.
Daily Schedule
Monday
- Earnings Releases Expected: Apple AAPL, Ashland ASH, Caterpillar CAT, Royal Caribbean Cruises RCL, United States Steel X
- Economic Releases Expected: U.S. services PMI, German lfo business climate index, Mexican trade balance, U.S. new home sales
Tuesday
- Earnings Expected: Air Products and Chemicals APD, American Airlines Group AAL, Amgen AMGN, AT&T T, Black Box BBOX, Ford Motor Company F, Pfizer PFE, Yahoo! YHOO
- Economic Releases Expected: French consumer confidence, British GDP, Irish retail sales, US durable goods orders, US consumer confidence
Wednesday
- Earnings Expected: 1-800 FLOWERS.COM FLWS, Boeing BA, Callaway Golf ELY, Canon CAJ, Dow Chemical DOW, Facebook FB, Las Vegas Sands LVS
- Economic Releases Expected: Spanish retail sales, Italian business confidence, Norwegian unemployment rate, Japanese retail sales, Chinese manufacturing PMI
Thursday
- Earnings Expected From: Chipotle Mexican Grill CMG, Eli Lilly and Company LLY, Google GOOG, Hershey Company HSY, Royal Dutch Shell PLC RDS, Time Warner Cable TWC, Visa V
- Economic Releases Expected: Spanish GDP, German unemployment rate, British consumer credit, eurozone business climate, eurozone industrial sentiment, US GDP, US pending home sales, Japanese unemployment rate, Japanese industrial production
Friday
- Earnings Expected From: Chevron CVX, Honda Motor Company HMC, Mastercard MA, Mattel MAT, National Oilwel Varcol NOV, Tyson Foods TSN
- Economic Releases Expected: eurozone unemployment rate, Canadian GDP, Japanese housing starts, German retail sales, French consumer spending, French PPI
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