Apple stock is one of the “best picks” for 2024 and has a 36% upside potential as it prepares for the launch of an AI-enabled iPhone, according to Bank of America.
The bank reiterated its “Buy” rating and $225 price target on the company, arguing in a Monday note that much of the weakness in its expected earnings growth is already reflected in the stock.
“While we recognize that the demand environment is weak, we believe stocks are already reflecting this (-14% year-to-date) and our aggregate estimates for the year remain relatively unchanged,” said Wasmi Mohan, analyst at Bank of America.
Mohan highlighted four potential catalysts that could help lift the stock between now and the end of the year, starting with the company’s earnings call next week.
First, Mohan said he expects Apple to increase its return on equity to shareholders when the company reports its fiscal second-quarter results. That could come in the form of a higher dividend, a larger share buyback program, or both. Mohan expects a 5% dividend increase and a $90 billion share buyback program.
Second, Mohan expects Apple to make a series of AI-related announcements at its upcoming WWDC software developer conference in June. That could excite investors, as Apple has been largely absent in announcing its artificial intelligence capabilities compared to its mega-cap tech peers.
Third, Mohan said he expects Apple to launch an AI-enabled iPhone 16 later this year that will offer generative AI capabilities on the device. That should help accelerate the company’s earnings power.
“Our checks indicate that all 4 New iPhone models this year could be launched with the same application processor (A18) that can enable improved AI/machine learning performance,” Mohan said.
Finally, Mohan said there are considerable upsides to Apple’s profit margins as the company develops chips internally, reducing its component costs and reducing its dependence on public cloud providers. Mohan also said that Apple’s Services business is poised to see strong revenue growth thanks to its Licensing, App Store, iCloud, and subscription offerings such as Apple TV+ and Apple Music.
For its earnings next week, Bank of America expects Apple to beat Wall Street estimates and predicts the company will report $1 billion in revenue from sales of its Vision Pro.
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