Canaccord Genuity on Apple, Fluor, and General Motors

By Canaccord Genuity  SEP 18, 2012 10:55 AM

The iPhone 5 helps bolster Apple, Fluor wins an EPCM contract from Dow Chemical, and GM wants the Treasury Department to sell its shares of the auto company.


The following are excerpts from Canaccord Genuity analysts' commentaries.

Apple (AAPL): An Apple a Day...

Canaccord Genuity Technology Analyst Michael Walkley’s checks this past weekend indicated record preorders for the iPhone 5 at all three US carriers  along with solid sales of discounted legacy iPhone models at AT&T (T) – Verizon (VZ) and Sprint (S) will discount iPhone 4/4S models on September 21. In fact, by Sunday, online stores for all three U.S. carriers indicated it will take two to three weeks to receive the new iPhone versus it shipping by the initial September 21 date. Walkley believes the extended ship date indicates record demand versus limited supply, and his checks with stores suggest record demand. He sees the iPhone 5’s differentiated form factor versus the iPhone 4S, improved hardware specifications including a larger 4-inch screen, A6 processor, LTE network support with improved battery, and new software capabilities introduced with iOS 6 driving strong iPhone 5 sales and extending Apple’s strong ecosystem.

Given the record pre-orders, Walkley estimates Apple could ship 9 million - 10 million iPhone 5 models by September 29, or the last day of F12, versus his initial estimate of 6 million iPhone models. He is increasing his F12 EPS estimate from $43.25 to $44.32 and his F13 estimate from $56.90 to $56.96. Bolstered by the iPhone 5, he believes Apple’s industry-leading software ecosystem and integrated hardware expertise will lead to a strong multi-year product cycle.

Fluor (FLR): Hammering Away. 

Fluor has won an engineering, procurement, and construction management contract (EPCM) from  Dow Chemical (DOW) for the construction of a propylene production asset project. Fluor successfully completed the front  end engineering and design (or FEED) contract for this facility, which helped it secure the EPCM contract. While the size of the award was not disclosed, Canaccord Genuity Infrastructure Analyst Yuri Lynk believes it is ~$750 million, and will be booked in Q3/12. He is particularly encouraged by this contract as it represents the first, what he would describe as, shale-gas driven petrochemical award in what may be a multi-year cycle.

Currently, Fluor is working on FEEDs that equate to $30 billion worth of petrochemical and gas-to-liquids jobs (compared to Fluor’s $43 billion backlog). Lynk notes, by its nature, this is  higher margin work than the mining contracts that currently dominate Fluor’s backlog. He believes Fluor’s ability to profitably execute on large, complex capital plans on a global basis positions it well in this era where multi-billion-dollar mega projects are increasingly the norm. With a rush to build billions of dollars worth of petrochemical, gas-to-liquids, and liquid natural gas projects underway in its own backyard, Lynk believes the company has potentially years of growth ahead of it. Add to this an already record $43 billion backlog (visibility), a deep prospect list, a 12-million share buyback (downside support), and a solid balance sheet, and he continues to be bullish on the stock.

General Motors (GM): Breaking Up Is Hard to Do.

The Treasury Department has declined General Motors’ request that the government sell its entire stake in the company as tension between the two partners continues to build. The US government provided GM with a $50 billion bailout in 2009 and now holds a 26.5% stake in the company. However, GM is reported to be frustrated with the ownership and the stigma that comes with government ownership. It believes the ownership stake is a drag on the company’s reputation and hurts recruitment due to pay restrictions.

Earlier this summer, GM reportedly proposed to purchase 200 million of the Treasury’s 500 million shares with the remainder being sold through a public offering. However, sources close to the matter say the Treasury isn’t interested in selling GM at the current price and aren’t in a rush to unload shares. As of Friday’s close, the US would lose about $15 billion on the bailout if it sold its entire stake. Shares need to hit $53 for the government to breakeven, although some close to the matter say the Treasury would consider selling in the $30s.

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