Cautious consumers, macroeconomic worries and continued supply chain bottlenecks are going to work against Apple Inc. in the near term, but don’t give up on shares now.
That’s the view from Citi analysts, who cut their target price to $175 from $200, but still gave five compelling reasons to keep buying the stock.
Shares of Apple AAPL, +0.68%, which is expected to report third-quarter results on July 28, are down 17% year to date. But the loss is milder than that seen by other big tech names that have sold off this year partly due to rising U.S. interest rates. Shares of Microsoft MSFT, -4.10% are down 24%, Alphabet GOOGL, -1.43% has lost 21% and Facebook parent Meta META, +0.24% has tumbled 51%.
Supply-chain concerns are “manageable” for Apple, given the fact the June quarter is seasonally slow anyway, while worsening FX headwinds and the company’s Russia exit will likely have an incremental effect on growth, said analysts Jim Suva and Asiya Merchant in a note to clients that published on Wednesday.
“A more concerning metric is the potential for lengthening device replacement cycles (currently at approximately 4 years for smartphones) amid consumer spending contraction in an inflationary/recessionary environment that could compress annual iPhone shipments and drive lower units as consumers await a major iPhone redesign, which we believe is unlikely until 2023 with the foldable,” said the analysts.
As for why to keep buying the stock, they offer the following reasons:
- The iPhone 14 build is expected to launch Sept. 14, with a foldable phone seen in 2023
- A mix shift that continues to skew away from lower-priced Android phones toward mid-end and premium priced products
- Apple’s plans to buy back around $90 billion in stock
- “Sticky” services revenue and potential for more devices-as-a-service offering
- New product launches such as AR/VR headsets and the Apple Car in 2025, neither reflected in current estimates and market cap