6 big reasons why Apple stock must buy in 2023: analysts

news7f12/22/2022

2 4 minutes read

6 big reasons why Apple stock must buy in 2023: analysts

Investors in Apple already have a year unlike Applebut at least one analyst thinks that will change in 2023.

Shares of the tech giant are down 25% in 2022, lagging the S&P 500’s 19% drop.

The drop comes despite Apple’s generally considered a safe-haven investment, as it boasts a cash-rich balance sheet and a steady stream of repeatable services income.

But like other major companies, the volatile global economic landscape has affected Apple in the form of slowing sales of iPhones and accessories, as well as delay production out of China affected by COVID-19.

Apple stock is currently trading with a price-to-forward earnings ratio of 22, down about 21% from the historical average. With a 16-fold conversion of business value to EBITDA, Apple stock trades at a 17% cut from its historical norm.

The more attractive valuation of the mighty Apple caught the attention of longtime technology analyst Jim Suva at Citi.

“We believe demand for Apple products and services is likely to remain stable throughout fiscal 2023. We recognize that regulatory risk remains a major issue for the stock. , but we consider this a headline risk, not a fundamental risk. The stock price downtrend we see as a buying opportunity in Apple stock,” Suva wrote in a new 20-page note to clients. row.

Suva reiterated a buy rating on Apple with a $175 price target, assuming a roughly 30% increase from current levels.

Suva added: “Apple’s current market value does not reflect new product category launches. This will change with the launch of new AR/VR headsets in 2023 and foldable in 2024.”

Here are six factors behind Suva’s call to price increases in 2023 for Apple.

This is India: Suva says that a less-appreciated factor in Apple’s future growth is India. The biggest bullish factor for India, says Suva, is the growing wealth of its population. “India’s upper middle and upper middle class, with incomes of $8.5k or more, is expected to double from what it currently occupies 25% of households to more than 51 % of total households (~200 million) These households are expected to increase their spending sixfold from 37% of current spending ($1.5 trillion) to 61% of 6 trillion dollars by 2030. Middle- and high-income households will drive nearly $4 trillion in incremental consumer spending by 2030. Overall, it’s likely to be close to 2 trillion in incremental spending on affordable services, on average, paralleled by $2 trillion in incremental spending as consumers upgrade to premium services or add consumable categories new,” said Suva.
iPhone sales growth: Suva said the sentiment about iPhone demand has become too pessimistic. “Investor sentiment toward consumer tech hardware is bleak, with many believing overall strong iPhone growth over the past two years (compound annual revenue growth rate of + 23%) is likely to decline sharply in the short term as macro-inflationary pressures ease, consumer spending cuts We don’t believe this is the case, in other words, we don’t expect a repeat back of 2016 or 2019 when sales were down ~10-15%,” Suva wrote. The analyst explains several reasons for his more optimistic view. “Our view is that the installed base of Apple’s iOS ecosystem is now significantly larger, meaning the installed base is more than 1 billion iPhone users. Additionally, our research. does not show that the smartphone replacement rate is stretching (compared to recent levels) and is holding steady and in some cases even shortening overall,” added Suva.
Service revenue increased: Suva’s research shows that Apple’s services sales growth has cooled in 2022, in part due to a slowing economy. But that could change in 2023. “We expect the price hikes that were made last quarter to take effect in subsequent quarters and will drive revenue growth going forward,” says Suva. Talk about the service business.
Those new products: “We expect Apple to launch an AR/VR headset in 2023,” said Suva. The analyst points to improvements in 5G connectivity and competing services from Meta’s Oculus as the main reasons why Apple will eventually enter the market. Suva thinks any product announcements along these lines could boost inventories.
Legal risks are overblown: Recently The report claims that To comply with the European Digital Markets Act, Apple may allow alternative app stores on its iPhone and iPad. Suva believes the impact on Apple’s dominant app store business has been overblown. “In our view, there are a number of factors that could limit the impact of these out-of-store payment options, including consumer behavior that in our view has difficult trend, especially when it comes to their ability to pay and manage their subscriptions securely in one place.”
Cash gifts: Suva thinks Apple is ready to ditch the mic when it returns cash to investors next year. “With ~$110 billion in free cash flow per year and net cash of $49 billion (as of end-2022), we expect Apple’s cash chest to support at least $110 billion plus annual shareholder returns, or 4-5% of its current market capitalization in the form of buybacks and dividends.In spring 2023, we expect Apple to announce a purchase $85 billion worth of incremental stock after deploying ~$90 billion in 2022. We also expect the company to increase its dividend by 10%,” Suva wrote.