Is now the time to resume the US-China trade war? Not according to Wedbush analyst Daniel Ives. The 5-star analyst argues a new US Commerce Department directive to halt the shipment of US semiconductors to Chinese tech giant Huawei, represents “a ‘doubling down’ on sanctions against this major Chinese smartphone artery.”
In retaliation, according to China’s Global Times, Chinese authorities are considering putting specific US companies, including Apple (AAPL), on an "unreliable entity list," thereby positioning Apple and its peers in the middle of the renewed trade battle crossfire.
Taking a step back, Ives said, “The last thing any already white knuckle tech investor wanted to see in the middle of a once in a century global pandemic/lockdown is a ratcheting up of tensions between US and China aimed at semis and the overall tech sector that have been an instrumental part of the market rally over the past month despite dark storm clouds.”
Apple’s reliance on a functioning US-China relationship cannot be underestimated, and the renewed hostilities could affect the giant from Cupertino like possibly no other US company. Apart from its role as the manufacturing base for 95% of Apple products, China provided $9.5 billion of revenue for the iPhone maker in the company's fiscal second quarter.
So, what next? Apart from getting caught in the crossfire, Apple is getting squeezed from both sides of the supply and demand equation.
From a demand perspective, China, a growing consumer base, is set to provide Apple with approximately 20% of iPhone upgrades over the next 12-18 months, amounting to an estimated 60 million to 70 million in iPhone sales.
Flip to the other side, and supply wise, should developments take a particularly nasty turn, Ives estimates Apple “would only be able to move 5%-7% of iPhone production to India/ Vietnam over the 18 to 24 months.”
However, Ives currently believes such a scenario is unlikely, and noted, “While uncertainty will add to an already worrisome near-term situation around the global demand picture for Apple, the fundamental impact on iPhone production and the potential backlash in the region thus far is more bark than bite at this point in our opinion.”
Ives has an Outperform rating on Apple, to go along with a $350 price target, which implies an 11% upside, should the target be met over the coming months. (To watch Ives’ track record, click here)
The rest of the Street is hardly less enthusiastic. 4 Holds and 1 Sell are countered by a resounding 28 Buys. The average price target is $317.92 and represents only modest upside of 1%. (See Apple stock analysis on TipRanks)
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In ordinary times, you can count on cruise lines to turn a profit. But, alas, these times are anything but ordinary, and as cruise ships lay dormant in ports around the world, a rethink is in order just to ensure survival.
That said, according to Wedbush analyst James Hardiman, Royal Caribbean (RCL) has enough liquidity available to see it through to February 2021 based on "an industry shutdown scenario.”
How does Hardiman arrive at such a conclusion? With operations shuttered, Royal Caribbean recently said that its monthly cash burn rate is between $150-$170 million. But with the addition of further outlays such as hedging costs and debt service expenses, the figure increases to between $250-$275 million a month.
In the meantime, the company has secured a $3.3 billion loan through a private offering of senior secured notes. After paying back loans amounting to $2.35 billion, Hardiman estimates RCL will have $1 billion left, “giving the company what we estimate would be pro-forma liquidity of ~$3.4B.”
Hardiman adds to the mix another $20-$50 million of monthly cash outflows. Where does this leave Royal Caribbean?
“Relative to the $3.4B of liquidity (with a $300M covenant-mandated floor),” Hardiman says, “This comes out to about 10 months of available liquidity on hand, which gets us into February of next year in a minimal revenue environment.”
However, even in a worst-case scenario, Hardiman doesn’t foresee RCL requiring a lifeboat, as it has further options.
The analyst concluded, "It remains to be seen whether or not RCL will be cash flow positive by early 2021, and yet we can appreciate what appears to be a hesitation to follow in the footsteps of both CCL and NCLH in significantly diluting shareholders by way of an equity offering. Such an offering nonetheless remains a viable option for the company, and so we have minimal concern that the company would actually run out of liquidity."
Accordingly, Hardiman keeps an Outperform rating along with a $63 price target. The implication for investors? Potential upside of 44% from current levels. (To watch Hardiman’s track record, click here)
All in all, the rest of the Street’s outlook for the struggling cruise line is a mixed bag. A Moderate Buy consensus rating is based on 5 Buys, 6 Holds and 1 Sell. However, the bulls are at the helm, as the average price target comes in at $67.80 and implies potential upside of 55%. (See Royal Caribbean's stock analysis at TipRanks)
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