After A Rough 2022, What Does 2023 Hold For Apple Stock?

+3.13%
Upside
155
Market
159
Trefis
AAPL: Apple logo
AAPL
Apple

The shares of Apple (NASDAQ:AAPL) had a tough 2022, declining by 27% over the year, underperforming the S&P 500 which was down by about 20% over the same period. Although Apple has fared better than big tech peers such as Amazon (NASDAQ:AMZN), Meta (NASDAQ:META), and Alphabet (NASDAQ:GOOG), it does face multiple headwinds. Firstly, there are concerns about demand for consumer electronics products, with the Covid-19 work-from-home tailwinds easing and the economic picture looking challenging, amid high inflation and rising rates. Apple has also been facing supply chain issues due to Covid-19-related issues in China. Protests at contract manufacturer Foxconn’s factory in Zhengzhou, which produces a vast majority of the popular iPhone 14 Pro and Pro Max devices, are also likely to have impacted Apple’s crucial holiday quarter sales. Apple’s services business is also slowing down. Over Q4 FY’22, the division grew by just 5%, compared to double-digit levels in previous quarters, and also below overall Apple Revenue growth which stood at 8% last quarter. Investors are concerned given that the division is very lucrative, with segment gross margins standing at over 70%, compared to Apple’s overall gross margin of about 43%.

So what’s the outlook like for Apple stock in the near term? While Apple’s revenue growth is likely to slow down in FY23, we believe the long-term picture for the stock remains intact. Apple’s financials have typically proved quite resilient even through economic downturns, given the company’s ecosystem lock-in, the high desirability of its products, and the ability to upsell to existing customers. Apple has also been continuing with its strategy of premiumization launching high-end versions of most of its products including the Apple Watch and AirPods which could help drive margins. We also think that Apple’s service business growth will rebound, as the economy and consumer spending improve and foreign exchange headwinds ease. At the current market price of $125 per share, Apple stock trades at just about 21x forward earnings, which we believe is reasonable given the company’s earnings growth prospects, and solid balance sheet. We continue to remain bullish on Apple stock, with a $166 price estimate which is about 30% ahead of the current market price. See our analysis of Apple Valuation for more details on what’s driving our price estimate for Apple and how it compares with peers.

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 Returns Jan 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 AAPL Return -4% -4% 332%
 S&P 500 Return -1% -1% 70%
 Trefis Multi-Strategy Portfolio 1% 1% 216%
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[1] Month-to-date and year-to-date as of 1/6/2023
[2] Cumulative total returns since the end of 2016

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