Apple's Multi-Year iPhone Upgrade Cycle Drives Strong Buy Rating

Bank of America's Wamsi Mohan raised their price target on Apple (NASDAQ: AAPL) by 2.2% from $225 to $230 on May 3, 2024. The analyst maintained their Strong Buy rating on the stock. Mohan's bullish outlook is based on several catalysts, including a strong multi-year iPhone upgrade cycle driven by GenAI, reaccelerating Services growth, strong capital returns, upside to gross margins, and increased interest from institutional clients in anticipation of AI features.

Mohan expressed confidence in their thesis, stating, "Our conviction around each of these catalysts is stronger post the earnings call," referring to Apple's second-quarter 2024 financial results released on May 2, 2024.

In Q2 2024, Apple reported earnings per share (EPS) of $1.53, surpassing the Zacks Consensus Estimate by 1.32% and Q2 2023 by 0.7%. Total revenue for the quarter reached $90.75 billion, slightly exceeding the Zacks Consensus Estimate by 0.85% but falling short of Q2 2023 by 4.3%.

While overall revenue showed growth, Apple experienced a decline in products revenue, which was down 10% from Q2 2023. Specifically, iPhone revenue also decreased by 10% compared to the same period last year. However, the company's gross margin saw a sequential increase of 70 basis points, reaching 46.6%.

Apple's commitment to returning value to shareholders was evident in the second quarter, with $27 billion returned, including $3.7 billion in dividends and $23.5 billion allocated for repurchasing 130 million shares. Moreover, the company authorized an additional $110 billion for share repurchases, highlighting its confidence in future growth.

During the earnings call, Apple's management provided guidance for the third quarter of 2024. They expect total revenue to increase by low single digits year-over-year, despite a 2.5% forex headwind. Additionally, they anticipate double-digit growth in iPad revenue and a gross margin ranging from 45.5% to 46.5%. Operating expenses are projected to be between $14.3 billion and $14.5 billion.

CEO Tim Cook expressed enthusiasm about the company's recent achievements and upcoming plans, stating, "Today Apple is reporting revenue of $90.8B for Q2, including an all-time revenue record in Services." Cook also mentioned the successful launch of Apple Vision Pro and teased an exciting product announcement in the following week, as well as the highly anticipated Worldwide Developers Conference the following month.

In addition to Wamsi Mohan's rating update, other analysts also weighed in on Apple's prospects on May 3, 2024. Barton Crockett of Rosenblatt raised their price target by 3.7% to $196 and reiterated their Hold rating on the stock. Erik Woodring of Morgan Stanley increased their price target by 2.9% to $216 and maintained their Strong Buy rating. Michael Walkley of Canaccord Genuity raised their price target by 7.5% to $215 and also maintained a Strong Buy rating.

Currently, 56.3% of top-rated analysts rate AAPL as a Strong Buy or Buy, while 37.5% consider it a Hold. Only 6.3% either recommend or strongly recommend selling the stock.

The consensus among analysts is that Apple's next fiscal year will deliver earnings per share (EPS) of $6.86, representing a 6.2% increase on a year-over-year basis.

Since Apple's latest quarterly report on May 2, 2024, the stock price has increased by 6%. Comparatively, the stock has demonstrated a 9.5% year-over-year growth rate. However, during this period, Apple has trailed behind the S&P 500, which has experienced a 25.4% increase.

Wamsi Mohan, the analyst who updated their rating on Apple, is ranked in the top 5% of Wall Street analysts by WallStreetZen. With an average return of 16.5% and a 58.4% win rate, Mohan specializes in the Technology sector.

Apple Inc., headquartered in Cupertino, California, is a global technology company known for its innovative products. The company designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories. Apple offers a wide range of products, including the iPhone, Mac, iPad, AirPods, Apple TV, Apple Watch, Beats products, and HomePod. Additionally, Apple provides various services such as AppleCare support, cloud services, the App Store, Apple Arcade, Apple Fitness+, Apple Music, Apple News+, Apple TV+, Apple Card, and Apple Pay. Apple serves consumers, small and mid-sized businesses, as well as the education, enterprise, and government markets. The company distributes third-party applications through the App Store and sells its products through retail and online stores, as well as other channels.

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