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6 Big Reasons Apple Stock Is a Must-Buy for 2023: Analyst

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Apple investors have had a different year than Apple, but at least one analyst believes that will change in 2023.

Shares in the tech giant are down 25% in 2022, trailing the S&P 500’s 19% drop.

The decline comes despite Apple often being seen as a safe investment, as it has a formidable balance sheet full of cash and a steady stream of repeatable services revenue.

But like other big companies, the volatile global economic backdrop has hit Apple in the form of slowing iPhone and accessory sales, as well as production delays in COVID-19-hit China.

Apple stock now trades at a futures price/earnings ratio of 22, approximately 21% off its historical average. At 16 times the company’s value to EBITDA ratio, Apple’s stock trades down 17% from its historic norm.

Apple’s most compelling valuation caught the attention of longtime technology analyst Jim Suva of Citi.

“We believe that demand for Apple products and services is likely to remain resilient through fiscal 23. We recognize that regulatory risk remains a major burden for equities, but we view it as a core risk rather than a fundamental risk. . long-term stock pullback, which we would see as a buying opportunity for Apple stock,” Suva wrote in a new 20-page report for clients.

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

Suva added, “Apple’s current market value does not reflect the launches of new product categories. This will change with the launch of the new AR/VR headset in 2023 and foldables in 2024.”

Here are the six factors behind Suva’s 2023 surge at Apple.

  1. Here comes India: An underappreciated factor in Apple’s future growth is India, says Suva. The biggest bullish factor in India, says Suva, is the rising wealth of the country’s population. “India’s upper and upper middle classes, with incomes of US$8,500 or more, are expected to double from currently representing 25% of their households to over 51% of total households (~200 million These households are expected to increase spending sixfold, from 37% of current spending (US$1.5 trillion) to 61% of US$6 trillion by 2030. Middle and upper-income households would generate nearly US$4 trillion in spending of incremental consumption by 2030. Overall, there will likely be nearly $2 trillion of incremental spending on affordable and mid-price offerings, alongside $2 trillion of incremental spending led by consumers upgrading to premium offerings or adding new consumption categories “, says Suva.

  2. iPhone sales growth: Suva says sentiment about iPhone demand has turned too bearish. “Investor sentiment in consumer tech hardware is very dismal, with many believing that the strong overall growth seen in iPhones over the past two years (+23% compound annual revenue growth rate) is likely to see sharp declines as macro inflationary pressures take a bite out of consumer spending. We don’t believe this is the case, in other words, we don’t expect a repeat of FY 2016 or FY 2019 when revenues were down ~10-15%” , writes Suva. The analyst unveils several reasons for his more optimistic view. “Our view is that the installed base of Apple’s iOS ecosystem is significantly larger now, implying an installed base of over 1 billion iPhone users. Furthermore, our research does not indicate that smartphone replacement rates are increasing (in compared to recent levels) and are holding steady, and in some cases even general shortening”, adds Suva.

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

  4. These 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 offering from Oculus da Meta as the main reasons Apple will finally enter the market. Any product announcement along those lines could boost stocks, believes Suva.

  5. Exaggerated regulatory risk: Recent reports claim that, to comply with the Digital Markets in Europe Act, Apple may allow alternative app stores on its iPhones and iPads. Suva believes the impact on Apple’s dominant app store business is overstated. Says Suva: “In our opinion, there are a number of factors that could limit the impact of these off-store billing options, including consumer behavior which we believe tends to be rigid, particularly around the ability to pay and manage your subscriptions securely in one place.”

  6. Cash gifts: Suva thinks Apple is about to drop the mic when returning money to investors next year. “With free cash flow of approximately $110 billion per year and net cash of $49 billion (as of the end of FY 22), we expect Apple cash to support at least $110 billion in shareholder returns per year. year, totaling 4-5% of its current market cap in the form of buybacks and dividends. In the spring of 2023, we expect Apple to announce an incremental $85 billion share buyback after deploying approximately $90 billion in fiscal year 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 lineup in Manhattan, New York, USA, September 16, 2022. REUTERS/Andrew Kelly

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance🇧🇷 Follow Sozzi on Twitter @BrianSozzi is on LinkedIn🇧🇷

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