After Earnings, is Apple Stock a Buy, Sell or Hold?

We
believe
guidance
for
weaker
iPhone
revenue
in
the
March
quarter
portends
weaker
iPhone
revenue
for
fiscal
2024
(ending
in
September).
In
our
view,
Apple’s
current
share
price
reflects
overly
rosy
expectations
for
iPhone
sales
over
the
next
five
years,
and
our
more
modest
forecast
leads
us
to
see
the
stock
as
overvalued.

AAPL
Bulls
Say

• Apple
  offers
  an
  expansive
  ecosystem
  of
  tightly
  integrated
  hardware,
  software,
  and
  services,
  which
  locks
  in
  customers
  and
  generates
  strong
  profitability.
• We
  like
  Apple’s
  move
  to
  in-house
  chip
  development,
  which
  we
  think
  has
  accelerated
  its
  product
  development
  and
  increased
  its
  differentiation.
• Apple
  has
  a
  stellar
  balance
  sheet
  and
  sends
  great
  amounts
  of
  cash
  flow
  back
  to
  shareholders.

AAPL
Bears
Say

• Apple
  is
  prone
  to
  consumer
  spending
  and
  preferences,
  which
  creates
  cyclicality
  and
  opens
  the
  firm
  to
  disruption.
• Apple’s
  supply
  chain
  is
  highly
  concentrated
  in
  China
  and
  Taiwan,
  which
  leaves
  the
  firm
  vulnerable
  to
  geopolitical
  risk.
  Attempts
  to
  diversify
  into
  other
  regions
  may
  pressure
  profitability
  or
  efficiency.
• Regulators
  have
  a
  keen
  eye
  on
  Apple,
  and
  recent
  regulations
  have
  chipped
  away
  at
  parts
  of
  its
  sticky
  ecosystem.

Is
Apple
Stock
Fairly
Valued?

With
its
2-star
rating,
we
believe
Apple’s
stock
is
overvalued
compared
with
our
long-term
fair
value
estimate
of
$160
per
share.
Our
valuation
implies
a
fiscal
2024
adjusted
price/earnings
multiple
of
25
times,
a
fiscal
2024
enterprise
value/sales
multiple
of
7
times,
and
a
fiscal
2024
free
cash
flow
yield
of
4%.

We
project
6%
compound
annual
revenue
growth
for
Apple
through
fiscal
2028.
The
iPhone
will
be
the
greatest
contributor
to
revenue
over
our
forecast,
and
we
project
3%
growth
for
iPhone
revenue
over
the
next
five
years.
We
expect
this
to
be
driven
primarily
by
unit
sales
growth,
with
modest
pricing
increases.
We
think
pricing
increases
will
be
driven
primarily
by
higher
features
and
a
mix
shift
toward
the
more
premium
Pro
models.

Services
are
Apple’s
next
biggest
revenue
contributor
over
our
forecast,
and
we
predict
8%
revenue
growth
in
this
segment.
Services
are
driven
in
large
part
by
revenue
from
Google,
thanks
to
its
status
as
the
default
search
engine
on
the
Safari
browser,
as
well
as
Apple’s
cut
of
App
Store
sales.
We
expect
solid
growth
in
Google
revenue,
but
we
see
a
more
mixed
outlook
for
App
Store
results.
There
we
forecast
growth
in
overall
app
revenue
but
progressively
lower
cuts
going
toward
Apple
as
the
result
of
regulatory
pressures.
Elsewhere,
we
see
roughly
high-single-digit
growth
across
revenue
from
Apple
Music,
Apple
TV+,
Apple
Pay,
AppleCare,
and
Apple’s
other
services.

We
see
the
highest
growth
opportunity
in
Apple’s
wearables
revenue,
to
the
tune
of
18%
through
fiscal
2028,
primarily
driven
by
our
expectations
for
the
ramp
of
the
new
Vision
Pro
headset.
We
project
a
rapid
ramp
for
Vision
Pro,
approaching
10
million
unit
sales
and
$30
billion
in
revenue
in
fiscal
2028.
We
see
high-single-digit
growth
for
Apple
Watch
and
AirPods
sales,
with
both
products
continuing
to
gain
share.

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