Apple Inc.’s Stock Rides High as Bernstein Maintains Market Perform Rating
Apple Inc. continues to impress investors with its strategic shift towards the services sector, as highlighted by Bernstein in its recent analysis. The firm, maintaining its Market Perform rating, maintains a consistent price target of $195.00 for the tech giant.
The services sector has proved to be a vital source of growth for Apple, with revenues skyrocketing from 15% to 22% over the past five years. This shift has led to improved gross margins and a re-rating of Apple’s stock.
To further enhance its services revenue, Apple has implemented notable price hikes across various offerings. TV+ alone experienced a significant 100% increase over 16 months, while adjustments were made to the pricing for Music, News, and Apple Arcade since the end of the 2022 fiscal year. These price changes are estimated to have boosted services revenue growth by 1.3 percentage points year-over-year, resulting in an approximate $1 billion increase in gross and operating profits.
Looking ahead to the 2024 fiscal year, these strategic pricing moves are projected to generate an additional revenue growth of 1.4 percentage points year-over-year. If realized, this could increase gross and operating profits by approximately $1.2 billion. Furthermore, Apple has also raised iCloud storage prices by 25% in certain countries, indicating the potential for even greater revenue growth when a global rollout is implemented.
Despite these initiatives, Apple’s services growth rate is expected to slow down. Analysts forecast a revenue increase of 11% for the fiscal year 2024, marking the third consecutive year of growth below 15%. This decline contrasts with the impressive 22% compound annual growth rate observed over the past decade.
With a market capitalization of $2.89 trillion, Apple continues to be a dominant force in the tech industry. The company’s high Price to Earnings (P/E) ratio of 29 reflects its lofty valuation, while its Price to Book (P/B) ratio of 39.0 underscores its status as a valuable investment.
While recent price hikes in Apple’s services have resulted in a slight decline in revenue growth by 0.47% over the last twelve months, the company’s Q1 2024 performance has been encouraging. In the first quarter, Apple achieved a quarterly revenue growth of 2.07%, contributing to an impressive operating income margin of 30.76% during the same period.
Additionally, Apple’s strong financial foundation is evident through its 12 consecutive years of dividend increases and its ability to sufficiently cover interest payments with its cash flows.
With its innovative services sector and solid financial standing, Apple remains an attractive investment option for discerning investors in the ever-evolving tech landscape.
Analyst comment
Positive news. Analyst: The strategic shift towards the services sector has boosted Apple’s stock and improved its financials. Despite potential slowdown in services growth, the company’s strong position in the tech industry and solid financial foundation make it an attractive investment option.
