Shares of long-time hedge fund favorite Apple plummeted more than 4 percent on Wednesday after the maker of the iPad and iPhone reported spectacular results that were apparently not spectacular enough for investors. The decline makes Lone Pine Capital’s Stephen Mandel Jr. look especially prescient, given that he fully exited the stock in the second quarter, as we earlier reported.
Even so, Wall Street’s analysts have apparently stuck with the company, firing off notes Wednesday morning that widely maintained their price targets and stock ratings. For example, Credit Suisse kept its Outperform rating and $145 price target, although it did cut its earnings estimates.
“We believe the disappointment in the stock was due to the lower scope for positive revisions ahead,” it states in a note. “Given high retention rates, a superior ecosystem, and multi-product compute advantage,” it adds, it expects that “such elevated level of earnings” and free cash flow of around 64 billion per year “should be sustainable long term.”
UBS kept its Buy rating and $150 target, noting that although the iPhone numbers were light, long-term value is being built. “Don’t see reason to get scared out of stock,” it adds.
On the other hand, Deutsche Bank maintained its rating, but it is a Hold, and kept its price target at $125. “We continue to remain concerned that AAPL’s smartphone market share is peaking, and expect iPhone unit growth to decelerate next year on more difficult compares,” it writes in its note. “With shares trading near historical average PEs, we view valuation as fair and reflective of the slower growth potential” in fiscal year 2016.
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Qualcomm reported fiscal third-quarter results that beat expectations. However, the stock, already down during Wednesday’s official trading hours, dropped even more in after-market trading in response to company guidance for the fourth quarter that was significantly below consensus forecasts.
However, it was a separate simultaneous announcement that will impact the chip-maker further down the road. Qualcomm announced an agreement with Barry Rosenstein’s New York-based activist hedge fund Jana Partners. Under the deal, two Jana-supported individuals have been named to the board of directors. In addition, Qualcomm will soon name a third new director, which Jana must agree to. Qualcomm also is reducing the average tenure of the board. The company also agreed to cut spending by $1.4 billion, including $300 million in annual share-based compensation grants. The company also said it plans to “return significant capital to stockholders.”
Qualcomm also plans to initiate a “new review of financial and structural alternatives available to create stockholder value,” which includes a review of the company’s corporate structure, capital return opportunities and other potential alternatives. Qualcomm also said the board plans to change Qualcomm’s executive compensation program. In a conference call with analysts and investors shortly after releasing its press release, Qualcomm said it will lay off 15 percent of its employees and has hired outside advisors to determine whether to break up its business, according to Fortune.com.
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New York-based Tiger Global Management has teamed up with Indian online shopping site Flipkart to invest $12 million in Nestaway, an Indian startup that offers an online marketplace providing home rentals, according to the Economic Times of India. Tiger Global is one of the biggest investors in Flipkart. Several months ago the Economic Times reported that Tiger Global, among other investors, was in talks with Nestaway about a possible funding round. Tiger Global’s venture capital arm, which has made scores of investments over the past few years, has made at least eight private investments this month alone, according to crunchbase.com.
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Credit Suisse trimmed its earnings estimates for Canadian Pacific Railway, a favorite of Pershing Square Capital Management’s William Ackman, and lowered its price target to $187 from $192 after the company lowered its 2015 guidance. “The modest reduction in the earnings outlook is the weaker than anticipated demand environment,” the bank states in a note. The stock was New York-based Pershing Square’s third-largest holding at the end of the first quarter.
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Hedge fund redemptions in July dropped to their lowest rate in 2.5 years, according to SS&C GlobeOp’s Forward Redemption Indicator. July 2015 notifications came in at 2.08 percent, down from 4.72 percent in June and the lowest level since January 2013.
“While this reflects normal seasonality to an extent, the July reading is below last year’s 3.15 percent for July and, in fact, matches the lowest July figure since the index’ inception in 2008,” says Bill Stone, chairman and chief executive officer of SS&C Technologies, in a press release. “This is consistent with other recent SS&C GlobeOp data suggesting that investors are keeping their hedge fund allocations largely in place despite turmoil in international markets.”
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Philip Falcone is back in court, this time suing Dish Network and chairman Charles Ergen over the disgraced hedge fund manager’s investment in LightSquared, according to the Wall Street Journal. Falcone and his Harbinger Capital Partners are seeking $1.5 billion, claiming Ergen hurt them when he acquired the debt of the wireless venture controlled by Harbinger while Dish was trying to gain control of the company in bankruptcy court. In his lawsuit, Falcone claims Dish and Ergen violated the federal Racketeering Influenced and Corrupt Organizations Act (RICO).
“Defendants wrongfully and deceptively created chaos in the chapter 11 cases directed at disabling Harbinger—the only stakeholder with a large enough interest to act against their scheme and, as the largest equity holder, the party most interested in maximizing the estate’s value,” Harbinger said in the lawsuit, according to the report. The suit was earlier dismissed by a federal judge in Denver.
LightSquared is expected to emerge from chapter 11 later this year, when it is expected to be controlled by New York-based investment firms Fortress Investment Group and Centerbridge Partners, among other investors. In August 2013, Falcone and Harbinger Capital Partners agreed to pay more than $18 million and to be barred from the securities industry for at least five years as part of a settlement with the Securities and Exchange Commission stemming from enforcement actions in June 2012. Falcone also was required to liquidate his hedge funds.
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Alternative investment firm Permal Group announced it has hired Terrence Purcell as named executive vice president, portfolio management and Marc Blieden was named EVP, chief risk officer. We reported last week that the firm also hired Robert Discolo as executive vice president of investments. Purcell was previously principal investment officer at the State of Connecticut Retirement Plans and Trust Funds. Discolo was previously managing director and head of the hedge fund solutions group at PineBridge Investments, where he spent 14 years. Blieden was previously at Man FRM as chief risk officer.
