6 Big Reasons Apple Stock Is A Must Buy By 2023: Analyst

Investors in Apple have had a year not very similar to Applebut at least one analyst believes that will change in 2023.

Shares of the tech giant fell 25% in 2022, below the 19% drop for the S&P 500.

The decline comes despite the fact that Apple is often seen as a safe-haven investment, boasting a formidable balance sheet full of cash and a steady stream of repeatable service revenue.

But like other big companies, the volatile global economic environment has hit Apple in the form of slower sales of iPhones and accessories, as well as China production delays affected by COVID-19.

Apple shares are now trading at a forward price-earnings ratio of 22, a discount of approximately 21% from its historical average. At 16 times enterprise value forward of EBITDA, Apple shares are trading 17% lower than their historical norm.

The most compelling valuation of mighty Apple has caught the eye of veteran technology analyst Jim Suva of Citi.

“We believe that demand for Apple products and services is likely to remain resilient through fiscal 2023. We recognize that regulatory risks remain a significant overhang for stocks, but we view them as a primary risk rather than a major risk. fundamental. Such headlines could provide a long-term stock near-reversal that we would view as a buying opportunity for Apple stock,” Suva wrote in a new 20-page report to clients.

Suva reiterated a Buy rating on Apple with a $175 price target, which is around 30% up from current levels.

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

Here are the six factors behind Suva’s bullish bet on Apple in 2023.

  1. Here comes India: An underappreciated factor in Apple’s future growth is India, Suva says. The biggest bullish factor in India, Suva says, is the growing wealth of the country’s population. “India’s upper middle and upper middle class, earning $8.5K+, are expected to double from currently representing 25% of their households to over 51% of total households (~200 million). these households increase spending six times from representing 37% of current spending ($1.5 trillion) to 61% of $6 trillion by 2030. Middle- and upper-income households would generate almost $4 trillion of incremental consumption spending by 2030. In Overall, there is likely to be nearly $2 trillion of incremental spending on affordable mid-price offerings, paralleled by $2 trillion of incremental spending led by consumers upgrading to premium offerings or adding new consumer categories,” says Suva.

  2. iPhone sales growth: Suva says sentiment on iPhone demand has become too bearish. “Investor sentiment in consumer technology hardware is very dour, with many believing that the strong growth seen overall in iPhones over the past two years (+23% revenue CAGR) is likely.” May see sharp declines as macroinflationary pressures take a breather bite into consumer spending We don’t think this is the case, in other words, we don’t expect a repeat of fiscal 2016 or fiscal 2019 when revenues declined by ~10-15%,” Suva writes. The analyst uncorks several reasons for the more optimistic view of him. “Our view is that the installed base of Apple’s iOS ecosystem is significantly higher now, implying an installed base of more than 1 billion iPhone users. Furthermore, our research does not indicate that smartphone replacement rates are declining.” lengthening (compared to recent levels) and holding steady, and in some cases even shortening overall,” adds Suva.

  3. Increased sales of services: The Suva research shows that Apple’s service sales growth has cooled in 2022, partly due to the slowdown in the economy. But that may change in 2023. “We expect the price increases that were implemented in the last quarter to take effect in subsequent quarters and drive revenue growth,” Suva says of the service business.

  4. Those new products: “We expect Apple to release an AR/VR headset in 2023,” says Suva. The analyst points to improvements in 5G connectivity and a competing Oculus offering from Meta as key reasons why Apple will finally enter the market. Any product announcement along these lines could boost shares, Suva thinks.

  5. Exaggerated regulatory risk: Recent the reports maintain that To comply with the Digital Markets Act in Europe, Apple may allow alternative app stores on its iPhones and iPads. Suva believes that the impact on Apple’s dominant app store business is overstated. Says Suva: “In our opinion, there are several factors that can limit the impact of these out-of-store billing options, including consumer behavior which, in our opinion, tends to be difficult, especially as it relates to ability to pay and manage your subscriptions securely in one place.”

  6. Cash gifts: Suva thinks Apple is about to drop the microphone when it returns cash to investors next year. “With free cash flow of ~$110 billion more per year and net cash of $49 billion (at the end of fiscal year 22), we expect Apple’s cash chest to support at least $110 billion more in returns for shareholders per year, amounting to 4-5% of its current market capitalization in the form of buybacks and dividends.In spring 2023, we expect Apple to announce an $85 billion incremental share buyback after deploying ~$90 billion million in fiscal 2022. We also expect the company to increase its dividend by 10%, Suva writes.

Apple CEO Tim Cook gestures at the Apple Fifth Avenue store for the launch of the Apple iPhone 14 range in Manhattan, New York, U.S., September 16, 2022. REUTERS/Andrew Kelly

Apple CEO Tim Cook gestures at the Apple Fifth Avenue store for the launch of the Apple iPhone 14 range in Manhattan, New York, U.S., September 16, 2022. REUTERS/Andrew Kelly

Brian Sozzi is a general editor and anchor on Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and in LinkedIn.

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