5 Reasons Apple Stocks May Trade Higher From Here

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There are reasons to expect higher highs for Apple stocks – and many new gadgets from the tech giant – to come.

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Over the past two years,


Apple

The stock rose 141%, bringing the company’s market capitalization to nearly $ 3 trillion as the company saw remarkable growth across all business segments – iPhones, Macs, iPads, wearable devices and services.

There are reasons to expect higher highs – and plenty of new gadgets – to come.

Citi analyst Jim Suva in a new research note repeated his buy note on Apple shares (ticker: AAPL). It raised its price target to $ 200 from $ 170, which implies an appreciation of about 15% from the stock’s current level. Apple shares on Wednesday rose 0.8% to $ 174.34.

Suva offers a list of five reasons why Apple can climb even higher in 2022.

For starters, he sees continued revenue growth, driven in particular by strong demand for iPhones and growth in related services. While investor sentiment towards consumer hardware has become “very austere” in the face of fears that demand for PCs and other equipment may return to pre-pandemic levels, Suva disagrees. He estimates that the installed base of iPhones has reached over a billion, with replacement cycle times staying the same or getting shorter.

“This implies that users value their devices and their technology and will likely continue to invest in upgrades on a regular basis,” writes Suva. “Assuming replacement rates hover around three years for smartphones and the modeling of some of these upgrades to be refurbished devices, we think this suggests that installed base upgrades have yet to come. room to translate into future unit growth, especially as 5G continues to roll out. in large economies.

Suva believes the iPhone 14, coming next fall, will feature a faster processor, longer battery life, and higher-resolution cameras. He sees Apple launch a foldable phone in 2023.

He’s also optimistic about the upcoming debut of a virtual / augmented reality headset, widely expected in the second half of 2022. Citi believes the AR / VR market “is set to grow,” he writes. . “Technology is at the heart of Apple’s next big hardware push beyond the iPhone, iPad and Apple Watch.” He expects details on the product to appear at the company’s annual developer conference in June. He expects a device priced between $ 750 and $ 1,000.

Another reason for its optimism is that service revenue growth is unlikely to be affected by regulatory changes, writes Suva. While the litigation has targeted Apple’s limitations on the use of third-party payment systems in apps, Suva believes the outcome won’t be revenue-significant.

“Many users prefer convenience and security over a small amount of financial savings,” he writes. “For developers, chasing higher margins through out-of-store invoicing will likely come at the expense of lower conversion rates and, by extension, lower revenues.”

Apple stocks, Suva adds, will also continue to benefit from the company’s aggressive stance on returning money to holders through dividends and particularly stock buybacks. With Apple generating more than $ 100 billion a year in free cash flow, he says, the company is likely to return at least $ 100 billion a year to its holders. He notes that the company announced new buyout plans in May in each of the past four years, and he anticipates another $ 90 billion clearance ahead – and he expects a 10% dividend hike ahead.

Finally, Suva is optimistic about the prospect of an Apple Car. It expects a launch in 2025 or earlier.

“Apple’s entry into the automotive market is not a question of ‘if’ but ‘when and to what extent’,” he writes. The analyst presents two scenarios for Apple and cars. The first is for the company to go all out and build an Apple Car through outsourced production. The result could be a 10% to 15% increase in overall sales, with a 5% to 11% increase in EBITDA, or earnings before interest, taxes, depreciation and amortization. In a more modest scenario, Apple is focusing on the IT ecosystem for cars, like CarPlay, with a 2% increase in sales and a 1% to 2% increase in EBITDA, he writes.

Write to Eric J. Savitz at eric.savitz@barrons.com

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