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Weekly Wrap: Apple Looks to New iPhone, Facebook Impresses

Plus, our take on first-quarter earnings from pharmaceutical companies, and Mondelez looks undervalued.

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Jeremy Glaser: Playing the waiting game on Apple's new iPhone, Facebook keeps rolling, in-line results from Big Pharma, and put Mondelez on your radar. This time on the Morningstar Weekly Wrap. 

Apple posted solid results this week, but analyst Brian Colello thinks all eyes are really on the upcoming iPhone.

Brian Colello: Looking at Q3, the forecast was a little bit light, but not too terrible relative to expectations. This is still a story about the new iPhones coming out in the fall, so we're getting into the spring/summer months where it's about selling the iPhone 7s, the current lineup, but everyone's looking to the next model at this point and that's where the real value and possible upset to the stock is going to be.

Glaser: Facebook's better-than-expected results reaffirm the firm's leadership, says analyst Ali Mogharabi.

Ali Mogharabi: Growth in Facebook's users keep attracting ad dollars, as the company generated ad revenues of $7.9 billion during the quarter, up 51% year over year. While Facebook is lowering ad inventory on its own properties later this year, for the time being demand has remained strong, which has pushed up ad prices as indicated by the 28% year-over-year increase in average revenue per user. The firm has also successfully added Snapchat-like features, such as Stories to Instagram, driving the app's users and user monetization higher. With more users and user engagement, Facebook is not only strengthening its network, but also possibly the value of its intangible assets stemming from user data.

Strong top-line growth also drove gross margin higher, resulting in an impressive operating margin expansion, but we don't expect this to continue this year, due to lower ad loads and higher growth in operating expenses. Now, we maintained our $135 fair value estimate for Facebook and continue to recommend a wider margin of safety before investing in this wide-moat name.

Glaser: There are several high-profile pharma earnings this week, and Damien Conover gives his take.

Damien Conover: The pharmaceutical industry wrapped up its first-quarter earnings with expectations largely met across the board. We continue to see the industry as largely undervalued, despite a lot of concerns about drug pricing pressure. What we're seeing in the earnings is drugs that are differentiated are still maintaining very strong pricing power; however, drugs that have a lot of competition to other drugs that are very similar, they are feeling some pricing pressure. Within this context, a couple of names we're recommending to people are AbbVie, Pfizer, and Eli Lilly, all of which have a nice, new group of products that we think are differentiated, have strong pricing power, and are underappreciated by the investment community.

Glaser: Mondelez saw impressive margin improvement in its first quarter, said analyst Erin Lash. Top-line growth was sluggish, but Lash thinks that over the long term, sales will accelerate and that there's room for more profitability growth. She sees shares as undervalued today. 

On Saturday, we'll have on-the-ground coverage of the Berkshire Hathaway annual meeting from Omaha.

Jeremy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.