Apple (AAPL), valued at $2.9 trillion, remains one of the world's most influential and highly appreciated companies. Known for its innovative products, robust ecosystem, and strong brand loyalty, Apple has consistently demonstrated its dominance in the technology sector.
The company's products have almost unparalleled customer loyalty, which is reflected in its continued growth and profitability. This is probably why Apple has earned a place in the portfolio of Warren Buffett's holding company, Berkshire Hathaway (BRK.B), accounting for 39.7% of total holdings.
Apple is also part of the "Magnificent Seven," or “Mag 7,” group of stocks that includes the top U.S. technology companies - a lineup that also features Amazon (AMZN), Meta Platforms (META), Nvidia (NVDA), Microsoft (MSFT), Tesla (TSLA), and Google's parent company Alphabet (GOOGL).
While Apple's stock price performance hasn't been particularly impressive this year compared to the other Mag 7 stocks, it has been a favorite among investors for decades. It has returned an impressive 739% in the last decade and 37,786% in the last 20 years.
Apple stock is down 1.4% in 2024, compared to the tech-heavy Nasdaq Composite's ($NASX) gain of 11.2%. Nonetheless, Wamsi Mohan, an analyst at Bank of America Securities, believes the stock has strong upside potential this year. Let’s find out why.
Bank of America Analyst Is Impressed With Apple’s Growth Strategies
On May 7, following Apple's Q2 fiscal 2024 results, Bank of America Securities analyst Wamsi Mohan reiterated his "buy" rating on the stock. The analyst's target price for AAPL stock is $230, implying a 21.1% increase from current levels.
Mohan is impressed by the company's commitment to returning value to shareholders. For context, Apple's CFO announced in the recent second quarter of fiscal 2024 earnings that the board approved an additional $110 billion share buyback program, as well as a dividend increase.
Mohan added, “ Despite a year-over-year decline in operating margins in China, Apple’s overall geographic performance showed margin improvements.”
The analyst also believes that, despite the legal challenges Apple is facing in the U.S. and EU, the company may benefit significantly from generative artificial intelligence (AI) advances.
In the second quarter, Apple launched its much-awaited product, Vision Pro, a spatial computer. Priced quite high relative to most of its other products, the base model starts at $3,499. It is too early to predict how this new innovative addition will boost the company's revenue, which suffered during the recent quarter.
Revenue fell 4.3% year on year to $90.7 billion, owing to a 10.5% drop in iPhone sales, which generates 51% of total revenue. Overall, product sales fell by 9.5% in the second quarter, while service revenue increased by 14.1%. Net income rose slightly by 0.65% to $1.53.
CEO Tim Cook stated on the Q2 earnings call that the company is optimistic about its prospects in generative AI. He added, “We are making significant investments and we're looking forward to sharing some very exciting things with our customers soon.”
Apple’s balance sheet showed cash and marketable securities totaling $162 billion, along with a total debt of $105 billion. In the quarter, the company returned $27 billion to shareholders through dividends and share repurchases.
Looking ahead to Q3, management anticipates low single-digit year-over-year revenue growth, with the services business increasing by double digits.
For the full fiscal year 2024, analysts forecast a slight increase in revenue of 0.99% to $387 billion, with growth bouncing back to 6.1% in fiscal 2025.
Apple also increased its quarterly dividend by 4%, to $0.25 per share. This marked the company's 12th consecutive dividend increase.
Apple’s forward yield of 0.53% is lower than the tech sector average of 1.4%, making it a less appealing dividend stock right now. However, with a payout ratio of 13.9% and consistent dividend increases over the last 12 years, there is potential for future dividend growth as earnings increase.
Wall Street analysts predict that Apple’s earnings will increase by 7.3% in fiscal 2024 and 9.4% in fiscal 2025. Currently, Apple stock is trading at 28 times forward 2024 estimated earnings, compared to its five-year historical average of 24x.
What is Wall Street’s Outlook For Apple Stock?
Overall, Wall Street analysts rate AAPL stock a “moderate buy.” Out of the 30 analysts covering the stock, 17 rate it a “strong buy,” three rate it a “moderate buy,” nine recommend a “hold,” and one suggests it is a “strong sell.”
The average analyst target price for APPL is $204.96, which implies an upside potential of 7.9% above current levels. Furthermore, the Street-high price of $250 implies an upside of 31.7% over the next 12 months.
The Bottom Line on Apple Stock
Although Apple's current valuation appears high, it may be worth paying the premium for a company like Apple.
The tech giant continues to invest heavily in research and development (R&D), which totaled $15.6 billion for the six months ended March 30. With a thirst for innovation, Apple could expand into new areas and continue to refine its offerings as AI advances.
Apple continues to be among the world's strongest brands. Its brand reputation and high customer satisfaction rates encourage repeat purchases and long-term loyalty. As a result, I agree with Bank of America's bullish outlook for Apple, believing the company is well-positioned to maintain its position as a global tech leader.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
