AAPL with Nobias technology: Apple: How Much Upside Is Left For This $2.5 Trillion Company?
Apple is the world’s largest company in terms of market cap. However, its shares have underperformed the broader market’s performance thus far throughout 2021. The company recently reported its second quarter earnings which beat analyst estimates. However, ongoing headlines related to antitrust hearings (primarily focused on Apple’s App Store policies/practices) appear to be holding the stock back. Due to Apple’s enormous size, this company is frequently reported on by analysts. And therefore, we wanted to take a look at what the top-rated Nobias rated analysts have recently had to say about the stock.
Surprisingly, when looking at the reports collected by our algorithm written by 4 and 5-star rated analysts, their focus was not on the antitrust headlines, but instead, the strong growth being generated by the company. John Ballard, a Nobias 5-star rated analyst, appears to be willing to ignore some of the regulatory/legal headwinds that AAPL stock faces at the moment and instead, focus on the company’s fundamentals. In an article titled, “2 Tech Stocks to Buy After Blowout Earnings Results” he talked about Apple as a top buy.
Ballard wrote, “Apple reported a record for the quarter ended in June of $81 billion in revenue, up 36% year over year. Earnings per share came in at $1.30, beating the consensus analyst estimate by 30%.” Furthermore, Ballard said, “While the chip shortage is expected to dampen near-term sales growth, management said during the recent earnings call that revenue should be up by double-digit rates again in the quarter containing September, although it will be lower than fiscal Q3.”
Finally, Ballard touched upon the expected strength of the company’s flagstar product, the iPhone, as a reason to be bullish. He wrote, “Most importantly, another strong iPhone launch would be huge for Apple's growing services business. Apple now has 700 million paid subscriptions on its platform -- nearly four times the level it had in 2017. For the nine-month period ending in June, Apple finished with $50 billion in services revenue, up 28% year over year.”
For years, critics of Apple have proposed the thesis that the global handset market is dying (or at least, it’s not growing) and therefore, Apple needs to innovate and move past the iPhone to justify its incredible market cap. Bearish analysts have been saying this for years, yet the fact is, Apple’s iPhone segment continues to boom. In a recent article, Harsh Chauhan, a Nobias 5-star rated analyst, actually highlighted Apple’s iPhone performance as “The Biggest Reason To Buy Apple Stock Right Now”.
Chauhan noted that “The smartphone titan reported $39.6 billion in iPhone revenue last quarter, a 50% increase over the year-ago period. This eclipsed the company's overall top-line growth of 36%.” He continued, saying, “It is also worth noting that the iPhone produced 48.5% of Apple's total revenue last quarter, up from 44.2% in the year-ago period.” Chauhan says that while Apple no longer specifically breaks out its iPhone sales figures in its earnings reports, the “IDC estimates that the company shipped 44.2 million units during the quarter.” Assuming this estimate is correct, it would represent 17.4% y/y volume growth. But, this figure is well below the iPhone unit’s revenue growth, implying strong margin expansion.
Chauhan highlights the higher phone prices that the IDC estimates point to as one of the more bullish reasons to buy shares. He said, “Dividing Apple's total iPhone revenue by IDC's estimated iPhone shipments during the quarter, the company's average selling price (ASP) comes out to a whopping $895. Apple had shipped 37.6 million iPhones in the prior-year period, according to IDC, which translates into an ASP of $702. So, if we assume IDC's estimates are correct, Apple's iPhone ASP jumped an impressive 27.5% year over year.” He touches upon the fact that in the prior year’s quarter, Apple did not have a 5G offering, which implies that the higher ASP’s are driven by 5G demand. The company’s expected ASP jumped on a sequential basis (relative to Q1) as well, which also fits well into the thesis that consumers are willing to pay more for Apple 5G devices as 5G penetration increases.
This is a “big deal” for Apple, says Chauhan. He wrote, “The 5G smartphone market is still in its early phases of growth. IDC estimates that 5G smartphones could account for 40% of global smartphone shipments this year and 69% in 2025. The overall smartphone market is expected to grow from an estimated 1.35 billion units this year to 1.53 billion units in 2025. So, annual 5G smartphone shipments could exceed 1 billion units by 2025 as compared to an estimated 540 million units this year.”
Apple is well situated to benefit from this increasing demand. Chauhan concludes his bullish piece saying, “All of this indicates that Apple is sitting on a terrific opportunity to increase both revenue and margins thanks to a combination of improved iPhone pricing and higher 5G smartphone shipments. What's more, the stock is trading at just 28 times trailing earnings right now, which is cheaper than last year's multiple of over 40. As such, investors looking to add a 5G stock to their portfolios right now should be taking a closer look at Apple.”
Dan Burrows, another Nobias 5-star rated analyst recently published a report which highlighted the upcoming iPhone 13 launch as a bullish catalyst for Apple shares. Burrows notes that “Shares in Apple were up 13.9% for the year-to-date through Aug. 16, lagging the Nasdaq (14.8%), Dow Jones Industrial Average (16.4%) and S&P 500 (19.3%) over that span.” However, Burrows highlights recent commentary provided by famous Apple analyst, Daniel Ives who continues to believe that Apple is a top-pick in the tech space, especially due to the ongoing 5G cycle which Chauhan based his bull thesis on above.
Burrows quoted Ives, who said, "Our favorite large-cap tech name to play the 5G transformational cycle is Apple, with the one-two punch of its massive services business and iPhone product cycle translating into a $3 trillion market cap for Cupertino in the next six to 12 months." And Ives isn’t the only big-name analyst who is bullish on Apple. Burrows points out that Warren Buffett, who is arguably the world’s most famous investor, is also extremely bullish on the company’s prospects.
Burrows says, “AAPL stock is nothing if not a long-term holding.” He continues, saying, “Just ask Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B), and arguably the greatest long-term investor of all time. AAPL is by far Buffett's favorite stock, accounting for a whopping 41.5% of Berkshire Hathaway's total portfolio value as of June 30.”
Jason Fieber, a Nobias 5-star rated analyst, agrees with this sentiment, having recently published a bullish article on Apple titled “Top 3 Dividend Growth Stocks To Buy And Hold Forever”. Fieber wrote, “What can be said about Apple that hasn’t already been said? It’s beyond legendary at this point. It’s the largest company in the world by market cap. And rightfully so, in my opinion.”
In Fieber’s opinion, the iPhone isn’t the only reason to own Apple shares. He says, “Be it an iPhone, an iPad, or a Mac, you’d be hard-pressed to find people in your life that don’t use something made by Apple. Not only that, this has become an “everything” company. It’s not just electronics. Apple is in communication, entertainment, payments, health, gaming, shopping, etc. There are even rumors it’s moving into mobility with its own car. It’s way beyond a tech company now.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Furthermore, Fieber likes Apple as a dividend play. He highlighted Buffett’s large position and then said, “Buffett loves growing dividends, just like I do. Speaking of which, Apple has increased its dividend for nine consecutive years. But don’t let that short track record fool you. They’re just getting started with it. I have zero doubt that this will be a Dividend Aristocrat one day.” He does point out that Apple’s current dividend yield is low, at just 0.57%. However, Fieber says this shouldn’t dissuade long-term investors from buying shares.
He concludes his piece saying, “The stock is up more than 450% over the last five years. Investors who get stuck on the 0.6% starting yield are missing the forest for the trees. It’s the growth in the dividends and the growth in the stock that you have to consider while you zoom out and look at things from a wide angle. This is the kind of stock that you can put away in a drawer for a generation and let it create magic for you.” It appears that the credible analyst community that is tracked by the Nobias algorithm agrees with this bullish sentiment.
Right now, 89% of credible authors that we track maintain a “Bullish” opinion on AAPL shares. The current average price target for AAPL from the credible author community that we track is $166.11. Today, Apple trades for $154.30, meaning that the credible author average price target implies upside potential of 7.65%.
Disclosure: Nicholas Ward is long AAPL. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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