By Sabrina Escobar
Apple won't escape an economic downturn unscathed. A slowdown in consumer spending and ongoing supply-chain challenges will weigh heavily on the company's June earnings report. But that doesn't mean investors should give up on the stock, according to Citi.
"Despite macro woes, we continue to see several positive drivers for Apple's products/services," wrote Citi analyst Jim Suva in a research note.
Suva outlined five reasons investors should look past the stock's recent lagging performance.
For one, he believes an iPhone 14 model could still be on track for a September release, which could be a short-term catalyst for the stock. Other product launches, such as the long-awaited artificial reality headsets and the Apple Car, could energize investors. Those products could be ready for market as early as 2025, Suva added.
In the long run, Apple (ticker: AAPL) will benefit from a consumer shift away from lower-priced competitors toward mid-end and premium products, such as the ones Apple offers, Suva wrote. The company also could capitalize on expanding its services segment, which has the potential for stickier, more regular revenue, he added.
Apple's current share repurchase program -- which totals $90 billion, or about 4% of the company's market capitalization -- will continue lending support to the stock's value, he added. The $90 billion buyback program comes on the heels of $81 billion in fiscal 2021. In the past, Suva has argued that an accelerated repurchase program should make the company a more attractive investment and help lift its stock price.
That said, Apple will still need to navigate a host of challenges in the near term. Suva predicts that supply-chain problems could drive a revenue impact of between $4 billion to $8 billion. Worsening headwinds from the company's Russia exit and fluctuating foreign exchange rates are also weighing on growth, he added.
"Macroeconomic conditions or shifting consumer demand could cause greater-than-expected deceleration or contraction in the handset and smartphone markets," Suva wrote. "This would negatively impact Apple's prospects for growth."
The analyst trimmed his price target on the stock to $175 from $200, but maintained a Buy rating. Most analysts remain bullish on the shares, with 74% rating them a Buy and 23% rating them a Hold, according to FactSet. Only one analyst, or 2.3%, rated them Underweight.
Apple was up 0.3% to $146.26 in premarket trading on Wednesday.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
$(END)$ Dow Jones Newswires
July 13, 2022 07:58 ET (11:58 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.
Comments