Copyright © Daniel Cullinane CPA.
During Apple’s all-hands meeting January 3, Tim Cook said Apple replaced 11 million batteries under the $29 replacement program, and they’d have only anticipated about 1-2 million battery replacements normally. (The fact that Cook held this all-hands meeting was reported by Mark Gurman at Bloomberg, but the contents of the meeting haven’t leaked. Well, except for this nugget I’m sharing here.)
The battery replacement program ran all year long, so even if it was more popular than Apple originally expected, why wasn’t it accounted for in guidance issued on November 1 — 10 months after the program started? My guess: the effect of the battery replacement program on new iPhone sales wasn’t apparent until after the iPhone XR and XS models were available. A few million extra iPhone users happy with the performance of their old iPhones with new batteries — who would have otherwise upgraded to a new iPhone this year — put a ding in the bottom line.
My take: If you’re joining this batterygate sequel midstream, the leak from Cook’s hands-on came after some back-of-the-envelope miscalculations by Jean-Louis Gassée in this week’s Monday Note (Apple Q1 Numbers: Missing Explanations). Gassée spitballed that Apple might have replaced a few hundreds of thousands of batteries at a $50 discount in 2018, not enough to significantly affect Q1 2019 iPhone sales. Giving new life to an extra 9 or 10 million aging iPhones, on the other hand, could knock the wind out of the launch of three pricy new models.
Super Bowl LIII between the New England Patriots and Los Angeles Rams is forecast to drive $320 million in betting. That is about double the sum wagered on the game between the Patriots and Philadelphia Eagles last year.
Sports betting news website VSiN reported that one reason for the rise is that last year’s Super Bowl fell on a date when legal betting was only allowed in Las Vegas. A Supreme Court decision has allowed that to spread to seven other states. The largest contributors to the rise will be $113.75 million bet in New Jersey and $12.25 million in Mississippi.
VSiN believes that the sharp rise is the continuation of a trend that will extend into next year:
We’ll see in the coming weeks how close we came on this forecast, but it’s clear that sports betting is continuing to explode in popularity (or at least in mainstream acceptance out in the open) and isn’t expected to slow down anytime soon. In fact, we can safely project that this year’s record will be short-lived as we’ll probably have twice as many states with legalized sports betting by this time next year and a legal Super Bowl 54 handle of at least $500 million.
Johnson & Johnson (NYSE: JNJ) released its fourth-quarter financial results before the markets opened on Tuesday. The health care giant said that it had in $1.97 earnings per share (EPS) and $20.39 billion in revenue, which compares with consensus estimates of $1.95 in EPS on revenue of $20.17 billion. In the same period of last year, the company said it had EPS of $1.74 and $20.2 billion in revenue.
During the quarter, operational sales results increased 3.3% and the negative impact of currency was 2.3%. Domestic sales increased 1.5% and International sales increased 0.4%, reflecting operational growth of 5.1% and a negative currency impact of 4.7%.
In terms of its sales, Johnson & Johnson reported as follows:
Prescription Drug sales increased 5.3% year over year to $10.19 billion.
Health Business sales were flat at $3.54 billion.
Medical Devices and Diagnostics Business sales dropped 4.4% to $6.67 billion.
Looking ahead to the 2019 full year, the company expects to see EPS in the range of $8.50 to $8.65 and sales between $80.4 billion and $81.2 billion. The consensus estimates are $8.61 in EPS and $82.68 billion in revenue.
Alex Gorsky, board chair and chief executive, commented:
Johnson & Johnson delivered another year of strong operational sales growth of 6.3% and achieved our 35th consecutive year of adjusted operational earnings growth at 9.8% in 2018. This can be attributed to accelerated underlying sales performance across each of our businesses, where we also leveraged our scale across the enterprise to improve margins. Looking ahead, the strength of our broad-based business and disciplined approach to portfolio management positions us to continue to fuel investments in innovation that enable us to capitalize on strategic opportunities and deliver strong performance over the long-term.
Shares of Johnson & Johnson closed Friday at $130.69, in a 52-week range of $118.62 to $148.99. The stock has a consensus analyst price target of $145.50. Following the announcement, the stock was down about 1.5% in early trading indications Tuesday.
The Mortgage Bankers Association (MBA) released its report on mortgage applications Wednesday morning, noting a decrease of 2.7% in the group’s seasonally adjusted composite index for the week ending January 18. Mortgage interest rates rose on four of five types of loans the MBA tracks.
On an unadjusted basis, the MBA’s composite index dipped by 0.3% in the past week. The seasonally adjusted purchase index decreased by 2% compared with the week ended January 11. The unadjusted purchase index rose by 4% for the week and was 13% higher year over year.
Mortgage loan rates for a top-tier 30-year fixed-rate loan increased from 4.57% to 4.60% last week, according to Mortgage News Daily. As of Tuesday night, top-tier borrowers were paying 4.59% for that loan. The yield on a 10-year U.S. Treasury note increased in the past week from 2.53% to 2.74% last night. A year ago the 10-year note yielded 2.66%.
Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, commented:
Mortgage application activity cooled off last week after two consecutive weeks of sizeable increases. Both purchase and refinance applications saw declines but remained at healthy levels, with the purchase index remaining close to a nine-year high, and the refinance index hovering near its highest level since last spring. Reversing the recent downward trend, rates increased for most loan types last week, due to better-than-expected unemployment claims, easing trade tensions and stabilization in the equity markets.
The MBA’s refinance index dropped by 5% week over week and the percentage of all new applications that were seeking refinancing decreased from 46.8% to 44.5%.
Adjustable rate mortgage loans accounted for 8.3% of all applications, down from 9.2% in the prior week.
According to the MBA, last week’s average mortgage loan rate for a conforming 30-year fixed-rate mortgage ticked up from 4.74% to 4.75%. The rate for a jumbo 30-year fixed-rate mortgage increased from 4.53% to 4.59%. The average interest rate for a 15-year fixed-rate mortgage slipped from 4.13% to 4.12%.
The contract interest rate for a 5/1 adjustable rate mortgage loan increased from 4.08% to 4.12%. Rates on a 30-year FHA-backed fixed-rate loan rose from 4.76% to 4.82%.
ASSEMBLY IN INDIA
JANUARY NEWSLETTER 3
WHEN GOOD EARNINGS ARE NOT ENOUGH
Stocks were indicated to open lower on Tuesday, the start of the shortened week. Investors have seen a big bounce in the stock market into earnings season, but they are also still recovering from major selling and volatility at the end of 2018. The trend of buying every dip into 2018 has been less rewarding for some time now, and investors need to consider how they want their investments and assets positioned for 2019.
24/7 Wall St. reviews dozens of analyst research reports each day of the week in an effort to find new ideas for investors and traders alike. Some of these analyst reports cover stocks to buy, while some of them cover stocks to sell or to avoid.
Additional commentary has been added on most of the daily analyst reports, along with trading history. The consensus analyst price targets and other valuation metrics are from the Thomson Reuters sell-side research service.
These are the top analyst upgrades, downgrades and initiations seen on Tuesday, January 22, 2019.
Activision Blizzard Inc. (NASDAQ: ATVI) was started with a Hold rating at Deutsche Bank.
Altria Group Inc. (NYSE: MO) was downgraded to Underweight from Equal Weight with a $45 target price (versus a $48.31 prior close) at Morgan Stanley. Altria has a 52-week range of $46.49 to $71.86 and a consensus target price of $57.95.
BJ’s Wholesale Club Holdings Inc. (NYSE: BJ) was raised to Outperform from Market Perform with a $29 price target (versus a $24.60 close) at Wells Fargo. The consensus target price is $28.69.
Cars.com Inc. (NYSE: CARS) was raised to Buy from Neutral with a $30 target price (versus a $25.21 close) at BTIG. It had a similar upgrade last week after announcing it was reviewing strategic alternatives. The consensus target price now is $30.58, and the 52-week trading range is $20.14 to $32.94.
CRISPR Therapeutics A.G. (NASDAQ: CRSP) was downgraded to Sell from Neutral with a $21 price target (versus a $37.13 close) at Citigroup. The stock was indicated down 7% at $34.50 on Tuesday, in a 52-week range of $22.22 to $73.90.
Electronic Arts Inc. (NASDAQ: EA) was started with a Hold rating at Deutsche Bank.
Embraer S.A. (NYSE: ERJ) was downgraded to Neutral from Outperform at Credit Suisse, with the downgrade pointed primarily to a less favorable outlook for business jets and defense. Embraer’s American depositary shares closed down 3.5% at $21.02 on Friday, in a 52-week range of $17.99 to $28.55.
Gap Inc. (NYSE: GPS) was downgraded to Sell from Neutral with a $23 target price (versus a $26.01 close) at Goldman Sachs. The consensus target price is $29.03, and a 52-week trading range is $24.25 to $35.68.
IAMGOLD Corp. (NYSE: IAG) was raised to Outperform from Neutral at Macquarie. Shares closed down almost 6% at $2.83 on Friday, in a 52-week range of $2.75 to $6.52.
Intuit Inc. (NASDAQ: INTU) was reiterated as Outperform and the target price was raised to $255 from $250 (versus a $213.87 close) at Credit Suisse.
KeyCorp (NYSE: KEY) was maintained as Buy but the price target was lowered to $21 from $23 at Argus.
Kinder Morgan Inc. (NYSE: KMI) was reiterated as Buy with a $23 price target at Argus, with the firm setting a 2020 earnings estimate that implies 9% growth.
Netflix Inc. (NASDAQ: NFLX) was reiterated as Hold at Argus, with the independent research firm pointing out that margins narrowed due to increased spending on new content.
Nike Inc. (NYSE: NKE) was raised to Outperform from Market Perform with a $90 price target at Cowen. It has a consensus target price of $86.55 and a 52-week range of $62.09 to $86.04.24/7 Wall St.
RBC Best Idea 2019 Utility Stocks for an Overbought and Overvalued Market
Palo Alto Networks Inc. (NYSE: PANW) was raised to Buy from Neutral with a $250 price target (versus a $203.30 close) at UBS. The consensus target price is $241.93, and the 52-week range is $148.41 to $239.50.
International Business Machines Corp. (NYSE: IBM) reported fourth-quarter financial results after markets closed Tuesday. Big Blue said that it had $4.87 in earnings per share (EPS) and $21.8 billion in revenue, compared with consensus estimates that called for $4.84 in EPS and $21.75 billion in revenue. The same period of last year reportedly had EPS of $5.14 in EPS and revenue of $22.54 billion.
In terms of its segments, IBM reported:
Cognitive Solutions (includes solutions software and transaction processing software) — revenues of $5.5 billion, flat year to year (up 2% adjusting for currency), led by growth in solutions software, including analytics and AI.
Global Business Services (includes consulting, application management and global process services) — revenues of $4.3 billion, up 4% (up 6% adjusting for currency), with growth across consulting, application management and global process services. Gross profit margin increased 300 basis points.
Technology Services & Cloud Platforms (includes infrastructure services, technical support services and integration software) — revenues of $8.9 billion, down 3% (flat year to year adjusting for currency), with growth in hybrid cloud revenue. Gross profit margin increased more than 140 basis points.
Systems (includes systems hardware and operating systems software) — revenues of $2.6 billion, down 21% (down 20% adjusting for currency), with growth in Power, offset by the impact of the IBM Z product cycle dynamics.
Global Financing (includes financing and used equipment sales) — revenues of $402 million, down 11% (down 9% adjusting for currency).
Looking ahead to the 2019 fiscal year, the company expects to see EPS of $13.90 and free cash flow of roughly $12 billion. The consensus estimates call for $13.84 in EPS and $79.06 billion in revenue.
Ginni Rometty, IBM’s board chair, president and CEO, commented:
In 2018 we returned to full-year revenue growth, reflecting growing demand for our services and leadership solutions in hybrid cloud, AI, analytics and security. Major clients worldwide, such as BNP Paribas, are turning to the IBM Cloud and our unmatched industry expertise to transform their businesses and drive innovation.
Shares of IBM closed Tuesday at $122.49, with a consensus analyst price target of $143.84 and a 52-week trading range of $105.94 to $168.72. Following the announcement, the stock was up 4.6% at $128.10 in the after-hours trading session.
Apple’s largest iPhone assembler, Foxconn Technology Group, is considering producing the devices in India, people familiar with the matter said, a move that could reduce Apple’s dependence on China for manufacturing and potentially for sales.
Executives at Foxconn, a contract manufacturer that assembles a large portion of the world’s iPhones in China, are studying whether to include an India project in budget plans, one of the people said. Senior executives, possibly including Chairman Terry Gou, plan to visit India after next month’s Lunar New Year to discuss plans, the people familiar said.
Without a doubt, the internet, which has had a spectacular growth cycle over the past 25 years, has become one of the single biggest leaps in technology as it applies to the consumer ever. The rate of growth has been and will continue to be staggering, and in a compelling new series on the National Geographic channel, “Valley of the Boom,” Millennials that were just being born at the dawn of the internet, can now see the feeding frenzy that it caused in Silicon Valley in the mid-1990s.
With huge jumps in technology, internet speeds that in some areas that have reached one gigabit, and literally hundreds of thousands of apps to choose from for every conceivable need, the internet’s future indeed is bright, and the fantastic growth rate is probably sustainable for years to come.
In a new research report, SunTrust’s internet and digital media analyst, Youssef Squali, not only presents the firm’s top picks in the sector, which we will cover on Thursday, but he also presents five bold predictions for 2019. In a sector that has come under increasing scrutiny over data leaks, customer data being used incorrectly, privacy concerns and a host of additional issues, many of the top stocks took a beating last year.
Squali noted this in the report when sizing up the sector for investors:
We remain constructive on the Internet and Digital Media (IDM) group for 2019 and recommend that investors stay the course. Despite macro-economic and political concerns, regulatory and currency headwinds, we believe the drivers of secular growth remain in place while valuations have on average reverted back to the midpoint of their 5-yr historical range.
When discussing specific issues the sector faces, he also noted this:
A question we often get lately is which names within the IDM sector are more resilient to a recession, should one occur. In reviewing our coverage universe, it is clear to us that not all IDM names are created equal; some should be more resilient to an economic slowdown than others. We believe that those that operate mission critical applications on behalf of businesses (large and small), including Web presence and cloud computing should do relatively well.
ALSO READ: Jefferies Out With Top Internet Stock Picks for 2019
Here are the five top internet and digital Media predictions from SunTrust for 2019:
Facebook Inc. (NASDAQ: FB) will strengthen its board of directors with a new and very independent chairman.
IAC/InterActiveCorp (NASDAQ: IAC) will use the company’s very strong balance sheet to make its biggest acquisition yet. The company currently operates through Match Group, ANGI Homeservices, Video, Applications and Publishing segments.
Alibaba Group Holding Ltd. (NYSE: BABA) also is expected to also make a huge and splashy acquisition in Europe.
EBay Inc. (NASDAQ: EBAY) may become the target of activist investors. With a market cap of almost $30 billion, it may take some deep pockets to affect real change.
If President Trump and the United States are successful in forcing China to open up its market for U.S. businesses and to protect intellectual property, the prospects for the mega-cap technology companies like Alphabet Inc. (NASDAQ: GOOGL), Amazon.com Inc. (NASDAQ: AMZN) and Facebook could be substantial.
Any way you slice it, the prospects and growth possibilities for the internet and digital media remain massive, and while the barriers to entry have grown over the past 25 years, there will always be a place for something new and innovative that changes the status quo.
Investors looking to be in the mix may want to stay with the mega-cap leaders, as their entrenched power and huge cash balance sheets allow them to pursue and develop new areas and business silos quicker. That edge isn’t going away anytime soon.
Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778
2500 Plaza 5 25th fl Jersey City NJ 07311 phone 732-516-1648 fax 732-516-9778