Apple Top Pick for 2024, BofA Eyes $225 Target Amid Earnings

Key Takeaway

• BofA names Apple a top pick for 2024, with a $225 price target, citing strong services revenue growth despite concerns over weak demand.
• Apple's stock struggles in 2023, down 14%, amid growth concerns and regulatory pressures; Morgan Stanley lowers its price target to $210.
• Wall Street shows mixed sentiment on Apple, with only 55% of analysts recommending a buy; broader market recovery observed as earnings season begins.

Apple's Upcoming Earnings Outlook

Bank of America (BofA) has named Apple Inc. a top pick for 2024, driven by optimism surrounding the iPhone maker's forthcoming results and its long-term prospects. Analyst Wamsi Mohan, who maintains a buy rating and a $225 price target on Apple's stock, highlighted the company's "rich catalyst path with defensive cash flows." Apple's second-quarter results, expected next week, are anticipated with a largely positive outlook from BofA, emphasizing strong services revenue growth and margins. However, concerns were raised about a weak demand environment, suggesting that a lower guidance for the fiscal second quarter could lead to a pullback in shares.

Apple's stock saw a modest increase of 0.2% on Monday, following a period of decline that resulted in its lowest close in about a year and a 6.5% drop over five days, erasing nearly $180 billion from its market capitalization. The stock's performance this year marks it as one of the weakest among megacap technology companies, down 14%, amid concerns over growth, especially in the crucial China market, regulatory pressures, and the absence of a clear strategy on artificial intelligence (AI).

Wall Street's Mixed Sentiments

Morgan Stanley adjusted its price target for Apple to $210 from $220, anticipating a disappointing forecast from the company. Analyst Erik Woodring noted the challenging setup in today's volatile market but recommended buying on post-earnings weakness, especially with an upcoming Apple event focused on AI. Bloomberg Intelligence also expressed caution, predicting that Apple's fiscal third-quarter sales guidance for iPhones in China might fall below the consensus estimate of a 2% drop, potentially extending the company's period of slow growth and negative sentiment.

Despite Apple's significant role in benchmark equity indexes, accounting for 5.7% of the S&P 500, Wall Street's sentiment is relatively skeptical. Only 55% of analysts recommend buying the stock, compared to higher bullish percentages for other tech giants like Microsoft Corp, Nvidia Corp, Alphabet Inc., Amazon.com Inc., and Meta Platforms Inc. However, some strategists, including Cantor Fitzgerald, find the stock attractive after its year-to-date drop, citing a more reasonable valuation level and potential benefits from a rotation into less rate-sensitive stocks.

Broader Market Perspectives

The broader market is showing signs of recovery, with stocks rebounding after a $2 trillion selloff. This comes as Corporate America enters a busy week for first-quarter earnings, which are crucial for shaping the equity outlook. The "Magnificent Seven" megacaps, including Apple, are expected to see a 38% rise in profits from a year ago. Equity strategists are divided on whether companies can meet robust earnings forecasts amid challenges like hot inflation, a stronger dollar, and geopolitical tensions.

Street Views

• Wamsi Mohan, Bank of America (Bullish on Apple):

  "Apple Inc. was named a top pick for 2024 at Bank of America on optimism over the iPhone maker’s upcoming results, as well as its longer-term prospects... The company has a 'rich catalyst path with defensive cash flows.'"

• Erik Woodring, Morgan Stanley (Cautiously Optimistic on Apple):

  "This appears priced in but in today’s volatile market, it’s a tricky setup... The firm recommends buying on post-earnings weakness, given an upcoming Apple event focused on AI."

• Anurag Rana, Bloomberg Intelligence (Neutral/Cautiously Pessimistic on Apple):

  "Given weaker iPhone demand in China, [Apple] will likely give fiscal 3Q sales guidance for the device below consensus’ 2% drop... This could prolong the company's slow growth and negative sentiment."

• Eric Johnston, Cantor Fitzgerald (Bullish on Apple):

  "With inflation running hot and yields pushing higher, we believe this environment will attract capital to less rate-sensitive stocks and given AAPL’s underperformance, we believe it will be a major beneficiary from this rotation."