May 28, 2023

Apple: Why it’s Buffett’s favorite stock and what analysts can expect for it

Among the various highlights of Berkshire Hathaway’s annual meeting this past Saturday (6), in Omaha, Nebraska, was Warren Buffett’s speech reinforcing the view that Apple (AAPL34) is the company of choice in his portfolio.

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Buffett pointed out that consumers’ desire for the company’s products distinguishes it from others.

“Our standard for Apple is different from the other companies we own – it’s simply a better business than any other business we own,” said Buffett.

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He added that the iPhone’s standing among consumers makes it an “extraordinary product”, which makes him very happy to own a stake in the company. “

Apple has a site with consumers where they’ll pay $1,500 or whatever for a phone. And the same people pay $35,000 to get a second car, and [se] Forced to give up a second car or give up their iPhone, they give up their second car. I mean, it’s an extraordinary product.”

In addition, another factor is that Berkshire has been able to increase its position in the company without having to spend on stocks. They are buying back their shares. So, instead of getting 5.6%, we went to 6% doing nothing. He pointed out that the company rose in the first quarter from 15.7 billion shares to 15 billion.

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In this way he made it clear that the company does not make up 35% of Berkshire’s portfolio – but it is a significant stake.

It should be noted that last Friday (5), Apple shares rose by 4.69%, on a positive day for the markets, but also due to the figures for the second fiscal quarter released the day before.

iPhone sales rose 1.5% during the period to $51.3 billion. Value greater than estimates of $48.66 billion for professionals consulted by FactSet.

“We are pleased to report an all-time record for services and a quarterly record for iPhone devices in March despite a challenging macro environment, and our installed base of active devices reaching an all-time high,” said CEO Tim Cook.

The data reinforced the optimistic view of many analysts about the company. According to Refinitiv’s group of 42 analysis houses covering the share of the company, traded on the NASDAQ, 34 have a buy rating on the stock, 7 have a hold rating and only 1 have a sell rating on the stock.

The only company to recommend a sale is Itaú BBA which, after last week’s result, reiterated its negative view, but highlighted the company’s resilience.

“Last quarter, we highlighted that first quarter results will be key for Apple. In our view, the recession in the US and Europe — and the recession that has already hit a range of products from cars to computers — will likely hit Apple. Well, Samsung has hit And Qualcomm and Foxconn. But it is not the largest US company by market capitalization. However, if we dig deeper into the result, at best the numbers came out uninspired, “say analysts.

Revenue was down 3% year over year led by very negative performance in the Americas (primarily US), where revenue was down 7.6%. In Europe, revenues were flat, likely buoyed by the same benefit of last year’s weak comparison base due to the conflict between Russia and Ukraine (this effect helped all other big tech companies (particularly META). In China, revenues also fell 2.9%, despite returning Economic openness.

But the fact that iPhone revenue was above investor expectations and guidance (projection) for the same uninspired 3% revenue decline in the following quarter was enough for Apple to maintain its status as a “flexible safe haven,” despite its multiple price-to-earnings per share (EPS). P/E) 26 times in 2024,” the bank’s analysts note.

For BBA, the market reaction says it’s not enough for revenue to drop 3% and operating result (Ebit, or earnings before interest and tax) to drop 5%, with EPS flat compared to a year ago, to cause shares to decline.

“We’re in a market that’s driven by the moment and technology has everything to do with it. So, the shock is necessary. Are we going to see a demand shock or severe earnings damage? Well, we don’t know. But we certainly think there are better options for putting your money in this environment than this stock.”

Goldman Sachs, in turn, reiterated its positive view, with a buy recommendation after the balance sheet.

“We have gained confidence in our Buy rating and believe Apple stock remains attractive.”

First, bank analysts point out that iPhone sales data was driven by a recovery in sales lost due to past supply issues, as well as better-than-expected performance in developing markets (for example, revenue in India, Indonesia, the UAE and Turkey doubled year-on-year).

Given the low share of iPhones in these markets (for example, 3% in India, less than 1% in Indonesia), Apple’s success in developing markets should contribute to revenue and install-base growth in the coming years, they point out.

Second, Services revenue grew 5% year-over-year, with all-time revenue records across the App Store, Music, iCloud, and Payments continuing to prove Services is a reliable source of long-term growth.

“In addition to secular tailwinds to growth in Apple’s app spending and installed device base, we’re encouraged by Apple’s continued investment in its core services business, including advertising and TV.”

Third, they point to the generous shareholder return program, which continues to prop up the stock. Apple generated $26 billion in free cash flow this quarter and returned $24 billion in equity to shareholders. It recently announced a mandate to increase asset buybacks by $90 billion and increase its dividend by 4% as it continues to make progress toward net cash neutral.

JPMorgan also reiterated a buy parity (overweight, or exposure above market average) recommendation for the company’s assets, highlighting its resilience amid a turbulent macroeconomic scenario.

“Overall, the results and direction are exactly what investors have come to expect from the company to feel more secure in its defensive position and, at the same time, the greater resilience of big tech in the current macro scenario (…) although we see some investors uncomfortable with the price-to-earnings multiple. 26x We believe the resilience of the proven business in current numbers, as well as at the start of the pandemic (2020), will significantly justify the reasons for paying the premium [sobre a ação]They reside.