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Apple Investors Should Brace Themselves: Monday Event Could Be A Yawner

You probably won’t need to hold onto your socks during Apple ‘s ( AAPL ) spring product launch event on Monday. That’s the message from Wall Street analysts trying to set realistic expectations for what’s likely to be announced. The tech press has been reporting for weeks that Apple will unveil a new 4-inch iPhone, a new 9.7-inch iPad and new Apple Watch bands at the media event Monday at Apple’s headquarters in Cupertino, Calif. “While we expect to see several ‘under the hood’ improvements across devices, we are not expecting the same exuberance as last year when Apple shared final details of the Apple Watch,” Oppenheimer analyst Andrew Uerkwitz said in a report Friday. “Moreover, we worry investors will find the next several Apple media events underwhelming.” Uerkwitz rates Apple stock as outperform with a 12- to 18-month price target of 120. Apple shares rose a fraction to 105.92 on the stock market today . Apple has a bunch of innovations in the works for release in 2017 and 2018, he said. They include possibly an iPhone with an OLED display, a virtual reality headset, 360-degree camera, and a hub for smart-home products using Siri, Uerkwitz said. Any surprises at Monday’s event likely will revolve around pricing for the new products and possibly the Apple Watch or the introduction of new MacBook or Mac Pro computers. Apple CEO Tim Cook also is likely to use the event as a platform to reinforce the company’s argument that the federal government has overstepped its legal bounds by demanding Apple hack its iPhone security. Apple and the Justice Department are set to square off in a federal court on Tuesday in a criminal case where the FBI wants Apple to develop software to bypass its password security measures. Because Apple gets most of its revenue from the iPhone (68% of sales in the December quarter), most of the attention Monday will be focused on the rumored iPhone SE. The new 4-inch iPhone will replace the same-size iPhone 5S, which was introduced in September 2013 and is still on sale. The new model is expected to sport an A9 chip, NFC technology to enable Apple Pay and a 12-megapixel, rear-facing camera to bring it up to snuff with the other iPhones. But it reportedly won’t have a pressure-sensitive screen like the premium models, the iPhone 6S and 6S Plus, which have 4.7- and 5.5-inch displays, respectively. The SE will be targeted to customers who prefer a smaller size handset as well as emerging markets because of its expected lower price. The iPhone SE “is likely to be a low-volume (for Apple) product that has minimal effect” on its earnings and stock price, Pacific Crest Securities analyst Andy Hargreaves said in a note Thursday. Hargreaves is bullish on Apple with a price target of 127 because of likely growth in the iPhone 7 cycle starting this fall. “Investors are not excited about this new phone,” Rosenblatt Securities analyst Jun Zhang said in a research note Tuesday. Zhang is “bearish” on prospects for the new iPhone SE because he expects that its price will be similar to second-hand iPhone 6 handsets in large emerging markets. “Second-hand iPhone 6’s are sold online at $350 in China, which we believe will be same price range of the iPhone (SE),” he said, adding that the price difference is such that many users will go with the larger display phone. Apple faced a similar pricing problem when it launched the iPhone 5C handset alongside the iPhone 5S. The 5C was priced only $100 cheaper than the 5S but had a cheaper-looking plastic casing. Sales of the iPhone SE are likely to be “ modest ” at 10 million to 15 million units annually, RBC Capital Markets analyst Amit Daryanani said in a research note Thursday. Still, the new phone could provide a buffer ahead of the launch of the iPhone 7, he said. Component suppliers likely to benefit from the iPhone refresh cycle include Jabil Circuit ( JBL ), Broadcom ( AVGO ), Amphenol ( APH ) and Texas Instruments ( TXN ), he said. Also Monday, Apple is expected to unveil its third-generation 9.7-inch iPad Air, which will be given similar functionality and accessories to the 12.9-inch iPad Pro. The current iPad Air 2 was launched in October 2014. The iPad Pro with its Smart Keyboard and Apple Pencil debuted last September. But the tablet business has been in decline at Apple and the new iPad is unlikely to change that, analysts say. “We do not expect the updates to materially change our outlook for iPad units, which seem likely to continue declining through fiscal 2016, but at a moderating rate,” Hargreaves said. Apple holds an IBD Composite Rating of 66 out of a possible 99, factoring in earnings growth, stock performance and several other metrics. Chipmaker Broadcom gets a 98 , Amphenol a 91 and Texas Instruments an 84. Jabil is not currently highly rated by IBD, with a Composite Rating of just 47.

Surprise! Electric Utilities Lead The Market

It may be a sign of the strange times in which we live, but utilities that provide us with electricity have emerged as a leading industry group. This traditionally boring group is ranked No. 9 out of 197. It’s likely that low interest rates are forcing income investors to seek dividend-paying stocks. Also, growth stocks remain out of favor, and money managers might be seeking the relative safety of utilities. Some of the stocks in this group have broken out of bases, but chart readers aren’t usually drawn to them for an intermediate move. Investors who buy them usually do so because they expect them to generate income for a number of years. Also, if the current rally strengthens, money managers are likely to cast them aside in favor of growth stocks. A dozen stocks in the 38-member group have Composite Ratings of 90 or above. The No. 1 stock in the group is ITC Holdings ( ITC ) with a Composite Rating of 97. It owns transmission systems that carry electricity to customers in Michigan’s Lower Peninsula and portions of Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma. Last month, the company announced that it is merging with Canada-based Fortis, which operates electric and gas utilities, in a deal valued at $11.3 billion. The company said the merger is accretive to earnings and that shareholders will see a meaningful dividend increase, which now equals an annualized yield of 1.8%. As part of the deal, Fortis will apply to list its shares on the NYSE. ITC’s stock has meandered out of a cup-with-handle base and is barely within the 5% buy zone from a 40.84 buy point. Pinnacle West ( PNW ) is the No. 2 company in the group with a Composite Rating of 96. It’s a holding company for Arizona Public Service, which supplies electricity to 1.2 million customers in Arizona and co-owns the Palo Verde Nuclear Generating Station, the largest nuclear plant in the U.S. and a primary source of electricity in the southwest. The company is benefiting from Arizona’s population and economic growth. It recently raised its dividend for the fifth straight year. It’s the equivalent of an annualized yield of 3.4%. Pinnacle meandered out of a saucer-with-handle base with a 70.10 buy point and is still within the buy zone. Atlanta-based Southern Co . ( SO ) has a Composite Rating of 96. It generates and distributes electricity to 4.4 million customers in Alabama, Mississippi, Florida and Georgia with a generating capacity of 46,000 megawatts. It also has just emerged from a saucer-and-handle base and is only 1% above a 50.34 buy point. But volume was missing on the breakout. The annualized dividend yield is 4.3%. The five-year annualized earnings growth rate is 4%. Analysts expect a 2% EPS decline this year and a 5% increase in 2017. Image provided by Shutterstock .

Salesforce.com, Workday Nip At Oracle Here; Microsoft, Amazon There

Enterprise software developers Workday ( WDAY ) and especially profitable Salesforce.com ( CRM ) have gotten this far without any love from software king Oracle ( ORCL ), so a little verbal swagger from Oracle’s executives this week isn’t going to stop them. But Oracle’s 40% growth in cloud software revenue to $735 million in its third quarter, with a promise of more in Q4 , can’t bode well for the smaller rivals. Accelerating cloud sales, mostly for software as a service (SaaS) and platform as a service (PaaS), were Oracle co-CEOs Safra Catz and Mark Hurd’s favorite topics in a post-earnings conference call with analysts Tuesday. Oracle’s cloud growth, while approaching Workday’s recent 43% sales growth rate, has already puffed Oracle’s cloud to more than double Workday’s total revenue of $323 million in Workday’s last quarter. More deceleration seems inevitable from Workday’s triple-digit growth as recently as 2013. As for Salesforce.com, its year over year sales growth has slowed to the 23%-29% range for six straight quarters, following 13 out of the prior 14 quarters of 31% to 38% growth. Analysts polled by Thomson Reuters put it on a 25% sales growth trajectory to $1.89 billion in the current quarter ending in April vs. 23% revenue growth in the year-ago quarter. Still, “competition from leading SaaS vendors such as Salesforce.com, Workday and others creates the risk that new customers will be tougher (for Oracle) to find and existing on-premise customers could move to different vendors when they shift to the cloud,” warned RBC Capital Markets analyst Matthew Hedberg in a research note issued Wednesday. “This was not a quarter to change the competitive concerns,” he summarized. Not to worry, suggests Oracle Executive Chairman Larry Ellison. In the Q3 earnings conference with analysts Tuesday, Ellison said: “Oracle is now selling more new SaaS and PaaS annually recurring cloud revenue than any other company in the world including Salesforce.com. We are growing much faster than Salesforce.com, more than twice as fast, because we sell into a lot more SaaS and PaaS markets than they do. We compete directly with Salesforce.com in every segment of the SaaS customer experience (CE) market including sales, service and marketing.” He went on to say: “But Oracle also competes in huge SaaS markets where Salesforce.com does not compete at all, such as ERP (enterprise resource planning) and HCM (human capital management). It took many years for Oracle to develop the most complete ERP suite in the cloud including Fusion Financials, procurement, supply chain, logistics, manufacturing and much, much more. That long effort is now paying off.” In the conference call, Bank of America Merrill Lynch analyst Kash Rangan, discussing the huge database software bulk of Oracle’s business, addressed Ellison by noting that Amazon ( AMZN ) Web Services “wants to go after your business.” “ Microsoft ( MSFT ) just announced a SQL server running on Linux,” Rangan continued, “and everybody seems to be . . . swapping out your Oracle license for their license. Why are they doing this, Larry? Is it just because the industry views Oracle as this big giant that is less flexible with pricing? Is that right, that the industry feels like they need to take you guys on? How should we be thinking of Oracle’s presence in the database market a few years from now, given these threats?” Ellison replied: “Well, our PaaS business grew at 150% this past quarter. I mean, it’s interesting that Microsoft is now offering SQL Server on Linux. But people want Oracle in the cloud. People have a huge investment in Oracle products. I mean, people are coming after us because we are by far the market leader in database. So, of course, Amazon, (if) they’re going to be in the database business too, is coming after us, and of course (if) Microsoft wants to be bigger in the database business, they have to come after us. We’re the biggest player. “We see our customers — literally millions of applications and millions of users of those applications built on top of the Oracle database — wanting to move those applications into the cloud and we do that very well. Our PaaS service is even easier to use and better than Oracle is on-premises.” Or, as Evercore ISI analyst Kirk Materne put it in his Wednesday research note: “With 310,000 on-premises database customers, the company sees an enormous potential TAM (total addressable market), as database customers continue to shift to the cloud.” Workday stock at midday was trading up about 3% near 72 in afternoon trading in the stock market today , 23% off its 52-week high set May 26 at 93.62 and about halfway back from its dive in January and early February to 49.5% below that high mark. Salesforce stock was flat near 73, just 12% off an all-time high 82.90 set Nov. 19. Oracle was up about 1.7% in afternoon trading Friday near 41, just 9% off its 52-week high of 45.24 touched June 17. Oracle stock carries a relatively weak IBD Composite Rating at 56, partly because of its 6% earnings shrinkage and overall 3% revenue slip to $9.01 billion in Q3 — as that fast growth in the cloud pulls sales and profitability away from its own legacy on-premises lines. That cloud revenue only amounted to 8% of Oracle’s total Q3 sales, up from 6% a year earlier. Workday carries a 50 Composite Rating and Salesforce.com stock an 83.