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Apple (AAPL), the Cupertino-based tech titan, holds the distinction of being the first company to hit market caps of $1 trillion, $2 trillion, and $3 trillion. Thanks to the popularity of its products, headlined by the iPhone, Apple has grown from a mere tech company to a full-blown lifestyle brand. Boasting a staunchly loyal fanbase worldwide, Apple's shares have been an investor's delight over the years.
More recently, though, the stock is off nearly 15% from its 52-week highs, and is down close to 12% on a YTD basis. The slowdown of iPhone sales in China, antitrust challenges at home and abroad, and concerns over product innovation have all negatively impacted investor sentiment around the stock.
However, top financial services firm Morgan Stanley (MS) reckons that the current weakness might be the most appropriate time to accumulate Apple stock. With fiscal Q2 numbers due out on May 2, analysts believe that investors should buy any "post-earnings weakness" in the stock.
Analyst Erik Woodring explained, “We expect a March Q beat and a well-telegraphed June Q guide down, but with the stock at $165 we'd argue this is largely priced in.” He says the next catalyst for the stock will be the June WWDC event, where developments around artificial intelligence (AI) will be closely followed.
So, should you buy the dip in Apple? Let's have a closer look.
Apple's Long-Term Consistent Results
Apple has been a consistent performer over the years. The company has delivered 10-year revenue and EPS growth at a CAGR of 8.29% and 16.15%, respectively.
More recently, Apple's revenue and earnings both surpassed estimates in fiscal Q1. Revenues for the quarter grew by 2.1% from the previous year to $119.58 billion, as strength in iPhone and services revenues primarily contributed to the overall growth. The company reported EPS of $2.18, denoting yearly growth of 16% and surpassing the consensus estimate of $2.10. Notably, despite concerns about slowing revenue, the company's EPS has topped expectations on four occasions over the past five quarters.
The company's cash generation capabilities also remained firmly intact, with cash from operating activities of $39.9 billion up an impressive 17.3% from the prior year. Overall, Apple exited the quarter with a cash balance of $40.8 billion, much higher than its short-term term debt of $10.9 billion.
Apple also offers a dividend yield of 0.58%. Although this is below the sector median of 1.025%, the company has been raising its dividends annually for more than a decade now. Further, with a payout ratio of just 14.89%, there's plenty of room for continued growth in these payouts, even as Apple continues to invest in new endeavors.
AAPL: Underappreciated AI Potential?
The AI revolution that is upending almost every industry on the planet may seem to have missed Apple, with tech peers like Amazon (AMZN), Microsoft (MSFT) and Google (GOOGL) all surging far ahead of Apple in the AI race.
However, expectations are now rising for a significant announcement around AI at WWDC, as Morgan Stanley indicated.
Between 2016 and 2020, Apple acquired the highest number of AI startups in the world, and the company is still growing; this week's acquisition of French AI startup Datakalab was the latest pickup. That company specializes in on-device AI deployment.
On the generative AI front, reports have suggested that Apple is in talks with Google to let the Gemini platform power its iPhone's AI features. And last month, Apple published a research paper on its new MM1, a family of large language models (LLMs).
Notably, Apple prioritizes on-device AI, integrating intelligent solutions directly into its hardware. This leverages their powerful chips and memory design. Acquiring DarwinAI, known for efficient on-device AI models, reinforces this strategy. By potentially combining these strengths with capabilities like Google's LaMDA, Apple aims to be a leader in consumer AI.
The Growth Story in India
Amid declining sales in China, Apple has been focusing on increasing its sales in India, the world's most populated country as well as the fastest-growing major economy in the world.
While 146 million smartphone units were sold in India in 2023 alone, it is the premium segment - where Apple operates - that's seeing the fastest growth. At only about 3% of the total smartphone market, the premium segment grew by 23% from 2022 levels. And when it comes to the super-premium market that includes the newest and best iPhone models, growth in 2023 was an astounding 86%, taking the super-premium stake in the market up from 4% to 7%. Apple remains a market leader in both these segments.
Meanwhile, Apple's first two company-owned stores, which it opened last year in the metropolitan cities of Delhi and Mumbai, have also recorded growth rates comparable to its stores worldwide.
With the population growth rates showing no signs of slowing down, Apple's focus on India is expected to reap dividends.
What's the Analyst Consensus on Apple?
After a rash of downgrades to start the year, analysts are now cautiously optimistic about AAPL stock. The consensus rating is a “Moderate Buy,” with a mean target price of $204.88. This indicates an upside potential of about 20.6% from current levels.
Out of 28 analysts covering the stock, 16 have a “Strong Buy” rating, 3 have a “Moderate Buy” rating, 8 have a “Hold” rating, and 1 has a “Strong Sell” rating.
