Apple (AAPL) Shares Seen as 'Attractive' as Recent Checks Show Continuously Strong Demand - Citi

April 9, 2021 7:50 AM EDT
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Price: $124.97 +1.79%

Rating Summary:
    44 Buy, 20 Hold, 5 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 26 | Down: 9 | New: 37
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Citi analyst Jim Suva reiterated an “Overweight” rating on Apple (NASDAQ: AAPL) amid a recent underperformance in the price action. The analyst attributes the latest underperformance to order cuts (iPhone 12 mini), antitrust concerns, as well as uncertainty around iPhone demand momentum.

Suva notes that the recent checks show robust App Store performance as well as strong “underlying demand fundamentals across consumer tech demand.”

“Our checks continue to suggest underlying demand fundamentals across consumer tech demand and App Store remains robust, App Store momentum also continues while we view the regulatory concerns as headline risk which are unlikely to be resolved soon. Capital returns likely to be in focus during this earnings call,” Suva wrote in a note.

Citi analysts expect a March quarter revenue of $78.7 billion, which is above the $76.6 billion consensus. This projection is based on positive underlying trends, i.e. China demand where AAPL gains a further share from Huawei, channel fill for iPhones following very low levels of inventory, as well as moderated year-over-year growth in AppStore numbers.

“We also expect management to update their capital returns program this quarter. We expect the size of the buyback authorization to be greater than the $50bln authorized last year and are currently modeling for $60bln in share repurchase authorization increase. Note Apple executed $76bln in share repurchased over the past twelve months. We are also modeling a dividend increase of ~10% vs 5-6% increases in FY21019 and FY2020,” Suva added.

For June quarter, Citi analysts are expecting $64.6 billion in revenues, which is lower than the $68.6 billion expected from the Street.

“We expect Apple to provide quarterly guidance given vaccine efforts and store openings globally. However, we are below the Street on iPhone revenues given mixed data points during the quarter on component reductions (JBL, Pegatron) though we attribute this mainly to the iPhone 12 mini demand. We also note semiconductor chip shortages could prevent upside. On gross margins we are at 39% and EPS of $0.70 vs Street at 39.9% and $0.82, respectively,” the analyst adds.

Overall, the analyst notes that AAPL stock is “attractive” due to the revenue diversification, unique product and branding, as well as strong cash flow generation and a potential of entering the lucrative EV market.

Suva also reiterated a $150.00 per share price target on AAPL.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $130.19 yesterday.

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