Apple Could Lose Ground in the Fourth Quarter

Dow component Apple Inc. (AAPL) posted an all-time high on Wednesday following an analyst upgrade, lifting its 2021 year-to-date return to 16.4%. Bullish summer sentiment throughout the big tech universe has underpinned this uptick, which is also feeding on positive reaction to the iPhone 12 Pro, released in the October 2020. However, there are technical dents in the icon’s shiny armor, raising odds that bears will take control in the fourth quarter.

Strong Upgrade Cycle

Analysts estimate that Apple has added 3% market share in China at the expense of Huawei, which now controls about 8% of sales. Here in the United States, telecom providers AT&T Inc. (T), Verizon Communications Inc. (VZ), and T-Mobile US Inc. (TMUS) have restarted aggressive promotions to existing customers, generating a positive impact on upgrade rates. Growing competition for 5G phones should force these companies to extend promotions well into the iPhone 13 product cycle.

Wolfe Research analyst Jeff Kvaal upgraded Apple to ‘Peer Perform’ on Wednesday, noting “we lift our FY22 iPhone unit/ASP assumptions from 228mn/$824 to 232mn/$833 given well-aligned US promotions and ongoing share gains. This translates into 4.6% sales growth and EPS of $5.85 (consensus 3.3%/$5.64). Recent PC results indicate demand remains well ahead of supply. We consider both products on a permanently higher trajectory as ~50% of shipments through the pandemic have been to new users”.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating after 2020’s historic 80% return, based upon 27 ‘Buy’, 5 ‘Overweight’, 9 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $90 to a Street-high $190 while the stock is set to open Thursday’s session about $15 below the median $168 target.  Closing the distance into the median target could be tougher than it looks, given technical red flags.

Apple broke out above the January 2020 high at a split-adjusted 81.96 and entered an historic advance that stalled in the upper 130s in September. The stock has added just 16 points in the last 12 months, posting an all-time high at 154.98 on Wednesday. The rally has nearly reached the trendline of rising highs over that period, exposing hidden resistance. More importantly, buying pressure has gone to sleep, slumping well below October 2020 and January 2021 peaks, suggesting it will take little energy to generate a major downdraft.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Earnings vs Inflation – What Is The Right Bet?

As investment money will always be looking for a place to roost many stocks still look like the best opportunity for alpha, especially some of your bigger high-tech companies like Microsoft, Google, Facebook, etc… who don’t face the same headwinds created by supply chain dislocations, higher commodity prices, etc.

Fundamental analysis

Bulls are hoping to see more money lured into the market by strong Q2 earnings which have so far failed to ignite a meaningful rally. Analyst expectations for S&P 500 company earnings is still around +65%, something stock bears argue is lofty considering the extreme level of supply chain dislocations and labor shortages.

There is also a lot of debate about whether corporate profit gains are “peaking” in the face of slower growth in the quarters ahead as the reopening boom begins to fade. Remember, investors place bets on the future, not what happened last quarter.

The earnings pace really picks up next week with highlights including IBM on Monday; Chipotle and Netflix on Tuesday; ASML, CocaCola, Novartis, and Verizon on Wednesday; Abbott Labs, AT&T, Biogen, Capital One, Dow Inc., Intel, Snap, Southwest Airlines, Twitter, and Union Pacific on Thursday; and American Express, Honeywell, and Nextera on Friday.

Inflation

One of the biggest factors that seem to be weighing on investor sentiment continues to be inflation. The latest indication of rising costs was reflected last week in U.S. Import Prices, which climbed for an eighth straight month in June.

However, the year-on-year increase slid to +11.2%, down from +11.6% in May is an encouraging sign that some inflationary pressures might be starting to ease. Federal Reserve Chairman Jerome Powell, testifying before the Senate Banking Committee yesterday, repeated the script he’s stuck with for months, saying inflation will likely remain elevated in the coming weeks and months before moderating.

Powell also told lawmakers that the Fed is not in a hurry to start paring its monthly asset purchases but he stressed that the central bank is prepared to adjust policy if they see signs of inflation moving “materially and persistently beyond levels consistent with our goal.” Wall Street increasingly expects the Fed to start trimming asset purchases later this year and even start lifting rates as soon as Q4 2022.

The Fed meets next on July 27-28 but most analysts think Powell will wait to make any big policy change announcements at either the annual Jackson Hole symposium at the end of August or possibly the FOMC’s September policy meeting. Central banks in Canada and New Zealand this week scaled back their asset purchase schemes which some worry could start to put pressure on central bankers in other developed countries to also tighten.

The European Central Bank releases its latest policy decision next Thursday. Bulls still largely believe that U.S. growth will be able to outpace “transitory” inflation pressures but the outlook for some companies could dim if the Fed starts reining in its “easy money” policies sooner than investors have been anticipating.

sp500 analysis forecast 18 july 2020

SP500 technical analysis

SP500 pulled back last week after another attempt to break out. There is no surprise we see such choppiness in the middle of summer. Moreover, very likely this price activity will stay for a few more weeks. We are still in a bull market. However, the risk of deep pullback is rising. If that happens, SP500 will target to close the gap near 4000.

On the other hand, if the price sustains above Gann resistance 4400, bulls will target 4500 at least. Two of my favourite indicators are giving opposite signals now. So, I don’t have any strong bias at the moment. Advance Decline Line remains bearish. At the same time, Insider Accumulation is bullish. In general, swing traders have to focus on daily support and resistance. Likely it will take few more weeks to see a real direction. Short-term traders can use Gann levels and Cycles on 4h charts to find trading opportunities.

Verizon Shows Off 5G-Connected Robots at Barcelona Conference

By Supantha Mukherjee and Clara-Laeila Laudette

Edge computing uses augmented reality and machine learning to analyse bulk data where it was gathered – whether factory floor, oil rig or office space – and requires fast data transfers of the kind that only high-speed 5G signals provide.

“When you have more than one robot on the floor, you run into a problem, as these are still just machines, and they can’t naturally communicate with one another,” Verizon’s Chief Strategy Officer Rima Qureshi said at the event in Barcelona.

“5G will make it possible for robots to connect with other robots and devices of all kinds in a way that simply wasn’t possible before,” she said.

Connected, smarter robots are considered crucial to making areas such as factory floors more efficient through automation, with remote monitoring cutting costs and the need for plant infrastructure.

As part of the demo, Qureishi beckoned at the stage’s wings and two robots emerged: one dog-like robot called Gigi – after 5G – that walked stiffly on four legs, and a second boxy bot named Mekeal – a nod to mobile edge computing, or MEC – which rolled in on traction wheels.

To train the robots to become aware of their environment beyond a two-dimensional route that cannot account for elements beyond origin and destination points, Qureishi said engineers had jumped in front of them, sent other robots in their path and thrown boxes in their path.

“I’m happy to report that neither engineers nor robots were harmed in the process,” Qureishi said.

The market for the global 5G in the cloud is expected to reach $10.6 billion by 2028, growing at 79.2% annually, Research and Markets stated in a recent report.

Verizon is also working on connected drones that could be deployed at locations hit by natural disasters, avoiding putting a human in danger and controlled by a single operator from hundreds of miles away, with live video and thermal imagery available to anyone in the world.

With 4G networks, drones were able to fly into U.S. fire zones without on-site personnel and to send data, almost in real-time, to staff 4,000 miles away, but with 5G, Qureishi said, drones could stream panoramic video to multiple recipients, who could each focus on different aspects of the image simultaneously.

(Reporting by Supantha Mukherjee and Clara-Laeila Laudette in Barcelona; Editing by Bernadette Baum)

Verizon to Sell Media Business, Including Yahoo, AOL to Apollo for $5 Billion

Verizon has struggled to grow its media business, declaring them nearly worthless with a $4.6 billion write-down in 2018. Bigger players such as Facebook and Google have sweeped the digital advertising market.

Verizon will get $4.25 billion in cash, preferred interests of $750 million and retain a 10% stake in Verizon Media, as part of the deal terms.

The business will be called Yahoo when the deal closes, which is expected in the second half of 2021, the company said.

Verizon Media’s portfolio includes online brands such as TechCrunch, Makers, Ryot and Flurry, according to its website. It reported revenue of $1.9 billion in the first quarter of 2021.

In 2017, Verizon bought Yahoo’s internet properties for about $4.48 billion, betting its 1 billion-plus users would be a fertile audience for online ads. It acquired email service AOL for $4.4 billion in 2015.

(Reporting by Eva Mathews in Bengaluru; Editing by Bernard Orr and Shounak Dasgupta)

Why Verizon Shares Are Rallying Today?

Verizon Video 17.02.21.

Berkshire Hathaway Bought An $8.6 Billion Stake In Verizon

Shares of Verizon are up by more than 4% in today’s trading session after Warren Buffett’s Berkshire Hathaway disclosed that it acquired an $8.6 billion stake in the company.

Verizon stock remained under material pressure since early December 2020. At the end of January, the company released its quarterly report which included revenue of $34.7 billion and adjusted earnings of $1.21 per share.

The report exceeded analyst expectations on both earnings and revenue but failed to provide additional support to the company’s shares. At the beginning of this year, the market remained focused on high-growth stories which may have put additional pressure on Verizon shares.

Verizon stated that it expected to report adjusted earnings of $5.00 – $5.15 per share in 2021. Currently, analysts project that the company will be able to meet its target, so the stock is trading at about 11 forward P/E which looks rather cheap in today’s market.

Most likely, Berkshire Hathaway was attracted by the company’s valuation which became more attractive after the stock declined from the $62 level to the $54 level in just two and a half months.

What’s Next For Verizon?

Berkshire’s moves always attract plenty of interest so Verizon shares have a good chance to gain additional upside momentum in the upcoming trading sessions.

The stock traditionally attracts income-oriented investors and yields about 4.4% at current prices. This time, income investors may be joined by some momentum traders who want to bet on increased investor interest after Berkshire’s purchase.

From a big picture point of view, Verizon remains a defensive stock which may get some additional support in case the market risk appetite decreases a bit and investors pull some money out of high growth stories which have become very expensive during the recent market rally.

For a look at all of today’s economic events, check out our economic calendar.

Verizon Communications Posts Better-Than-Expected Q3 Earnings; Target Price $63

Verizon Communications Inc, a major U.S. telecommunications service provider, reported a better-than-expected profit in the third quarter, largely driven by solid demand for internet services and phones as most people worked remotely amid the COVID-19 pandemic.

Verizon reported EPS of $1.05, compared with $1.25 in third-quarter 2019. On an adjusted basis (non-GAAP), third-quarter 2020 EPS, excluding a special item, was $1.25, compared with adjusted EPS of $1.25 in third-quarter 2019. That higher than the market consensus of $1.22.

The company estimates that third-quarter 2020 EPS and adjusted EPS included about negative 5 cents of COVID-19-related net impacts. Total consolidated operating revenues in third-quarter 2020 fell 4.1% to $31.5 billion. This decline was due to lower customer activity and the timing of certain device launches.

Revenue in Verizon’s media unit, which includes TechCrunch, Yahoo and HuffPost, plunged 7.4% to $1.7 billion, but an increase of 21.2% from second-quarter 2020.

The company forecasts 2020 adjusted EPS growth of 0%-2%, improved from the previous prediction of -2% to 2%. Total wireless service revenue is expected to grow at least 2% in fourth-quarter 2020 compared to last year.

At the time of writing, Verizon Communications shares traded 0.17% lower at $57.15 on Wednesday; the stock is down about 7% so far this year.

Verizon Communications Stock Price Forecast

Eleven equity analysts forecast the average price in 12 months at $63.20 with a high forecast of $70.00 and a low forecast of $57.00. The average price target represents a 10.51% increase from the last price of $57.19. From those 11 equity analysts, five rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $60 with a high of $71 under a bull scenario and $42 under the worst-case scenario. Bernstein raised their stock price forecast to $63 from $60. Royal Bank of Canada reiterated a “hold” rating and set a $57 target price on shares of Verizon Communications.

Several other analysts have also recently commented on the stock. Credit Suisse Group reiterated a “hold” rating and set a $61 target price on shares of Verizon Communications. Oppenheimer started coverage and set a “buy” rating and a $70 price objective on the stock. Argus upgraded shares from a “hold” rating to a “buy” rating and set a $68 price objective.

Analyst Comments

“Attractive business mix, as the wireless market leader. Wireless service revenue 70% of consolidated revenue, and wireless EBITDA ~85% of consolidated EBITDA. Dividend yield and potential buybacks provide some support, while the transition to 5G creates opportunities and risks, with mid-band spectrum needs in focus,” said Simon Flannery, equity analyst at Morgan Stanley.

Upside and Downside Risks

Upside: 1) Continued strength in wireless. 2) Rates remain lower for longer. 3) Defensive market. 4) Developments around mobile video, and internet of things – highlighted by Morgan Stanley.

Downside: 1) Rising interest rates make the dividend yield less attractive. 2) Competitive price pressure from wireless competitors. 3) Wireline business faces significant secular pressures. 4) Spectrum spend/M&A pressure Balance Sheet metrics.

Check out FX Empire’s earnings calendar

Verizon to Acquire America Movil’s Tracfone For Up To $6.9 Billion; Target Price $70

Verizon Communications, an American multinational telecommunications conglomerate, said it will acquire Mexican telecom giant America Movil’s Tracfone, the leading pre-paid and value mobile provider in the United States, for up to $6.9 billion in cash and stock, sending its shares as high as 1.6% on Monday.

The consideration for the transaction will include $3.125 billion in cash and $3.125 billion in Verizon common stock, subject to customary adjustments, at closing. The agreement also includes up to an additional $650 million in future cash consideration related to the achievement of certain performance measures and other commercial arrangements, the company said.

Verizon expects to drive significant benefits and network synergies from the transaction. Verizon expects the transaction to be accretive in the first full year following closing, excluding transaction and integration costs, and does not expect the transaction to materially impact capital expenditures.

“We estimate Verizon’s (VZ) post synergy multiple will be just 3-4x, and that conservatively assuming no growth, will be 3% accretive to FCF/share in year two post-close, and we continue to believe VZ will be in a position to start buying back stock in 2022,” said Colby Synesael, equity analyst at Cowen.

“We view the deal as positive given (1) significant synergies that we estimate will increase TracFone EBITDA margins to 30% two years from close, and (2) increased exposure to value/prepaid subs in a recessionary environment as well as a potential upsell opportunity. Including a 10% capex assumption on TracFone service revenue, we estimate the deal will be 3% accretive to FCF/share and 3-4% accretive to EPS in year two,” Synesael added.

The transaction is subject to receipt of regulatory approvals and other customary closing conditions. Verizon expects the transaction to close in the second half of 2021.

Credit Suisse acted as financial advisor to Verizon and Debevoise & Plimpton acted as legal advisor.

Verizon’s shares closed 0.88% higher to $60.32 on Monday after rising as high as 1.6% intraday; however, the stock is down about 2% so far this year. Also, the America Movil ended 6.36% higher at MXN 14.22 in Mexico.

Executive comments

“This transaction is aligned with what we do best: providing reliable wireless service alongside a best-in-class customer experience,” said Hans Vestberg, Chairman and CEO of Verizon.

“This transaction firmly establishes Verizon, through the Tracfone brands, as the provider of choice in the value segment, which complements our clear leadership in the premium segment,” Vestberg added.

Verizon stock forecast

Twelve analysts forecast the average price in 12 months at $62.70 with a high forecast of $70.00 and a low forecast of $57.00. The average price target represents a 3.95% increase from the last price of $60.32. From those 12 equity analysts, six rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $60 with a high of $71 under a bull-case scenario and $42 under the worst-case scenario. Verizon Communications had its stock price forecast boosted by Deutsche Bank to $62 from $60.

Other equity analysts also recently updated their stock outlook. Verizon Communications had its price objective boosted by analysts at UBS Group to $60 from $59. The brokerage presently has a “neutral” rating on the cell phone carrier’s stock. Citigroup boosted their price objective to $60 from $55 and gave the stock a “neutral” rating. At last, JPMorgan Chase & Co. dropped their price objective to $62 from $63 and set a “neutral” rating.

We think it is good to buy at the current level and target $70 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst views

“We will be interested to learn why Verizon decided to jump into prepaid in a more aggressive way after generally preferring to go the wholesale route in recent years, while the prepaid segment overall has lost momentum relative to postpaid in recent years. With an election looming we will also be watching for any regulatory commentary given Verizon’s wireless/postpaid market leadership, although Tracfone is not a facilities-based player,” said Simon Flannery, equity analyst at Morgan Stanley.

“Attractive business mix, as a wireless market leader. Wireless service revenue 70% of consolidated revenue, and wireless EBITDA 85% of consolidated EBITDA. Dividend yield and potential buybacks provide some support, while the transition to 5G creates opportunities and risks, with mid-band spectrum needs in focus,” Flannery added.

Upside and Downside risks

Upside: 1) Continued strength in wireless. 2) Rates remain lower for longer. 3) Defensive market. 4) Developments around mobile video, and internet of things, highlighted by Morgan Stanley.

Downside: 1) Rising interest rates make the dividend yield less attractive. 2) Competitive price pressure from wireless competitors. 3) Wireline business faces significant secular pressures. 4) Spectrum spend/M&A pressure Balance Sheet metrics.

Check out FX Empire’s earnings calendar

U.S. Group Verizon and South Korea’s Samsung Electronics Sign $6.65 Billion 5G Deal

Verizon Communications, an American multinational telecommunications conglomerate, and South Korean multinational electronics company Samsung Electronics have announced to sign a deal worth $6.65 billion for 5G network equipment and services.

“With this latest long-term strategic contract, we will continue to push the boundaries of 5G innovation to enhance mobile experiences for Verizon’s customers,” Samsung said in a statement, Reuters reported.

Samsung noted in a regulatory filing the period of the contract, which Samsung signed with Verizon, is from June 30, 2020 to end-2025, Reuters added.

Samsung Electronics shares rose over 3% to KRW 58,300 on Tuesday. On the other hand, Verizon’s shares rose 0.12% to $60.55 in after trading hours on Friday and the stock is up about 2% so far this year.

Verizon stock forecast

Eleven analysts forecast the average price in 12 months at $62.30 with a high forecast of $70.00 and a low forecast of $57.00. The average price target represents a 3.01% increase from the last price of $60.48. From those 11 analysts, five rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $60 with a high of $71 under a bull-case scenario and $42 under the worst-case scenario. Verizon stock price forecast was raised by Deutsche Bank to $62 from $60.

Other equity analysts also recently updated their stock outlook. Verizon Communications had its price objective boosted by analysts at UBS Group to $60 from $59. The brokerage presently has a “neutral” rating on the cell phone carrier’s stock. Citigroup boosted their price objective to $60 from $55 and gave the stock a “neutral” rating. Oppenheimer reaffirmed a “buy” rating and set the price target at $70.

Analysts’ views

“Attractive business mix, as wireless market leader. Wireless service revenue 70% of consolidated revenue, and wireless EBITDA 85% of consolidated EBITDA. Dividend yield and potential buybacks provide some support, while the transition to 5G creates opportunities and risks, with mid-band spectrum needs in focus,” said Simon Flannery, equity analyst at Morgan Stanley.

“Our price target for Samsung Electronics is W70,000: We continue to employ a residual income (RI) valuation model, cross-checked against P/BV analysis. At our W70,000 price target, the 2021 P/B multiple would be 1.4x, which is in line with its long-term mid-cycle valuation level of 1.4x. Our terminal growth rate assumption is 5%, and we assume an 11.5% cost of equity, based on a beta of 1.0,” said Shawn Kim, equity analyst at Morgan Stanley.

Upside and Downside risks

Upside: 1) Continued strength in wireless. 2) Rates remain lower for longer. 3) Defensive market. 4) Developments around mobile video, and internet of things – highlighted Morgan Stanley.

Downside: 1) Rising interest rates make the dividend yield less attractive. 2) Competitive price pressure from wireless competitors. 3) Wireline business faces significant secular pressures. 4) Spectrum spend/M&A pressure Balance Sheet metrics.

Check out FX Empire’s earnings calendar

Equities Sink On Global Tensions, VIX Jumps 20%; Earnings Still In Focus

The Jamal Khashoggi Killing Has Markets On Edge

Global tensions sent equities markets around the world diving for cover. Fear of slowing growth, the fallout from the US-Sino trade war, and the killing of journalist Jamal Khashoggi all played a part. Asian markets were down the most falling an average 2.5% to 3.0% at the close of the Tuesday session. Indices in the region are trading at or near long-term low levels with the Korean Kospi hitting a near 20 month low with today’s action. The Volatility Index rose more than 20%.

European markets were down an average -1.0% to -2.0% at mid-day, up off the low of the session but still at or near their own 20-month lows and indicated lower. Focus in this region is on the murder of Khashoggi which is turning into a major international event. The journalist, a self-imposed exile from Saudi Arabia, has deep ties to the US, EU and other major western powers who are now faced with the problem of how to deal with the Saudi’s now the cat is out of the bag. The Saudi’s have promised not to weaponize oil but the crisis is far from over.

The Tech Wreck

Technology stocks were hit the hardest in the EU session. Chipmaker AWS led with a loss near -25% as the companies outlook for year-end sales was not convincing enough for shareholders to stand pat. AWS released earnings yesterday delivering a near 50% increase in revenue with upbeat guidance for the final three months of the year.

Tech stocks led Tuesday’s route in both the EU and the US. US futures were indicated down an average 1.5% to 2.0% going into the opening bell and looking weak despite a round of positive earnings releases. Reports from United Technologies, Harley Davidson, Verizon and McDonald’s all beat analysts expectations on the top and bottom lines sending shares of these stocks higher in early action.

US Corporate Earnings Are Strong, Outlook OK

United Technologies and Harley Davidson were able to raise guidance, executives at HOG say stronger sales in the EU have helped to offset issues with tariffs and were a boost to earnings. Verizon’s beat was driven by better than expected subscriber growth. On the flipside, shares of Caterpillar fell more than -6.0% despite its top and bottom line beat due to poor outlook and weak guidance. The company says tariffs and trade woe are having an impact on profitability but was able to reaffirm its guidance. The problem for traders is that guidance was in a range with the lower end well below analysts consensus.

McDonald’s beat was driven by strong comp store sales. Comps in the US rose a strong 2.4%, just shy of the 2.5% estimated, but global comps rose a whopping 4.2%. Analysts had been expecting a more tepid 3.7% but strength was seen in the lead international markets, up 5.4%, and in the high-growth target market, up 4.6%. There is no economic data scheduled for today so traders will be focused on earnings and global headlines. Notable earnings after the close of Tuesday’s US session are Chubb, Texas Instruments, and iRobot.