The Zacks Analyst Blog Highlights: Apple, Sprint Nextel, AT&T, Google and Family Dollar Stores

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Oct 03, 2011, 09:30 ET

CHICAGO, Oct. 3, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Apple Inc. (Nasdaq: AAPL), Sprint Nextel Corp. (NYSE: S), AT&T Corp. (NYSE: T), Google Inc. (Nasdaq: GOOG) and Family Dollar Stores Inc. (NYSE: FDO).

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Here are highlights from Friday's Analyst Blog:

Apple Set to Unveil iPhone 5

As per news agency Bloomberg, Apple Inc. (Nasdaq: AAPL) is expected to ship the latest version of iPhone on October 4, 2011. Apple has planned an event in San Francisco where the Cupertino, California-based company will officially unveil the much-hyped device.

Apple introduced iPhone way back in 2007 and released its fourth version at the Worldwide Developers Conference (WWDC) in June 2010. The new model will be launched 16 months after the launch of iPhone 4, compared with 12 months between previous model updates.

According to Bloomberg, the device tentatively named iPhone 5 will feature a better camera and faster processor. iPhone 5 will run on Apple's upgraded iOS 5, which includes new notification and text messaging systems. According to analysts, the new iPhone may include voice-recognition software, faster networking technology and improved graphics performance.

iPhone 5 is expected to be slimmer and lighter compared to the earlier versions. Analysts believe that Apple will maintain its pricing policy for the upcoming iPhone and will likely drop the price of iPhone 4 to give customers a more affordable alternative.

The iPhone product line is Apple's most successful to date, with 55.2 million units sold in the nine months ended June 2011, representing an increase of 113.0% from the year-earlier period. Net sales of the iPhone and related products and services were $36.1 billion in the nine months of 2011, representing a year-over-year increase of 121% and accounting for 45.1% of Apple's total net sales.

Analysts believe that the long gap between iPhone 4 and 5 will drive demand, which in turn will boost sales for the upcoming first quarter of 2012, which ends December 2011. RBC Capital Markets estimates 110 million iPhone sales in 2012, that too at a much faster pace than 2011.

Moreover, the addition of Sprint Nextel Corp. (NYSE: S), the third-largest carrier in the U.S. that will begin offering iPhone with an unlimited data services plan will also boost sales, according to the analysts. Currently, AT&T Corp. (NYSE: T) and Verizon Wireless are the only two U.S. carriers of the iPhone.

We also note that this will be the first major product to be introduced under the supervision of the new Chief Executive Officer (CEO), Tim Cook, after Apple's iconic CEO Steve Jobs resigned on August 24, 2011. An increasing competitive landscape, where Apple is facing tremendous competition from Google Inc.'s (Nasdaq: GOOG) Android-based smartphones makes the situation tricky for Cook and his new management team.

It will be interesting to see how Cook responds to these headwinds and also to the growing demands of the industry, as he steps into the shoes of Jobs, who has been synonymous to new ideas that develop into new products that Apple thrives on.

Our Take

We believe Apple has immense potential to gain significant market share in the smartphone market, with the launch of the new iPhone. Apple has already established itself as the leading smartphone maker in the second quarter of 2011. Research firm, Strategy Analytics, confirmed Apple's iPhones to have grabbed an estimated 18.5% market share, compared with the 13.5% share a year earlier.

We also believe that the acquisition of the Nortel assets and approximately 40 patents in China bodes well for Apple going forward. We are appreciative of Apple's approach of acquiring patents, which will lead to incremental growth in China as well as in other emerging economies in the Asia-Pacific over the long term. Apple's ability to spur the popularity of the products in developing nations, where pricing is often an important consideration, will go a long way toward deciding the company's future growth.

However, increasing competition and various lawsuits keeps us on the sidelines. We maintain a Neutral rating on a long term basis (6-12 months). Currently, Apple has a Zacks #2 Rank, which implies a Buy rating in the short term.

Trian Executive Joins Family Dollar

Family Dollar Stores Inc. (NYSE: FDO), the operator of self-service retail discount store chains, recently announced the appointment of the founding partner and chief investment officer of Trian Partners, Edward P. Garden, as a director.

The announcement followed the agreement wherein Trian agreed to limit its stake to 9.9% in Family Dollar. Further, Family Dollar's board will be now expanded to eleven members with the addition of the new Director.

Earlier in March, the retailer refused a voluntary offer from Trian Group for the buyout as it felt that the bid significantly underrated the company. Trian Group, the largest shareholder of the company with approximately 8.0% stake, had offered $55.0 to $60.0 per share or approximately $7.0 billion to Family Dollar.

Family Dollar Stores, which operates a chain of retail discount stores in the United States, faces stiff competition. It offers general merchandise in four categories: consumables, home products, apparel and accessories, and seasonal and electronics. Family Dollar at present operates a chain of 7,000 general merchandise retail discount stores across 44 states.

Family Dollar's strategic initiatives to enhance the merchandising, marketing, and store operations have resulted in persistent growth in both the top and bottom lines. In order to boost the market share, Family Dollar intends to focus on both consumable and discretionary categories

Further, the company has effective price and inventory management, cost control, private label offering, expanded operating hours to drive sales and margin trends.

Moreover, the company's point-of-sale technology (credit card and food stamp acceptance) and store realignment initiatives better positions it to increase traffic, meet customer's demand and enrich its in-store shopping experience.

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