By Senad Karaahmetovic
Citi analyst Jim Suva reiterated a Buy rating on Apple (NASDAQ:AAPL) as he continues to see several positive drivers for Apple’s products/services.
Heading into the FQ3 print later this month, Suva believes Apple’s supply chain issues are "manageable," however, the dollar strength and exit from Russia will weigh on this quarter’s growth.
"A more concerning metric is the potential for lengthening device replacement cycles (currently at ~4 years for smartphones) amidst consumer spending contraction in an inflationary/recessionary environment that could compress annual iPhone shipments (1bpn+ installed base, ~240 mln units annual shipment) and drive lower unit volumes as consumers await a major iPhone redesign, which we believe is unlikely until 2023 with the foldable. Recent data from the supply chain show solid iPhone production," Suva told clients in a note.
Beyond this quarter, the analyst remains bullish and offers five reasons why investors should buy Apple stock.
- iPhone 14 build is still on track for Sept 14 launch, foldable phone coming in 2023;
- Mix shift continues to skew away from lower priced Android phones towards more mid-end and premium pricing products;
- A ~$90 billion (~4% of current market cap) stock buyback;
- Sticky services revenues;
- New product category launches.
On the valuation front, the analyst sees the ~1.4-1.5x relative PE as "reasonable given competitive moat, strong FCF generation and balance sheet strength."
Still, Suva cut the price target on Apple stock to $175 from $200 to reflect lower estimates, which are a result of slowing consumer spending "coupled with continued supply chain bottlenecks that are likely to weigh on near-term fundamentals."
Apple stock price closed at $145.86 yesterday.