Apple is up 30% YTD and shares could reach all-time highs in 2023

Timing the markets is very difficult, and investors sometimes drive themselves crazy pondering when the appropriate times are to buy and sell positions. I have often implied that Apple is the greatest company for various reasons, from rewarding shareholders with massive buybacks to being the most profitable company in the market. While AAPL’s stock experiences price fluctuations just like every other company, I don’t believe there is ever a bad time to invest in AAPL. You may not get the best price every time, but AAPL has been a great generator of wealth, and scheduling consistent buys will ensure that your adding shares at a range of prices. There is a reason why AAPL is the largest component in the S&P 500 and why it makes up 6.96% of the SPDR S&P 500 Trust (SPY) and 6.02% of the Vanguard S&P 500 ETF (VOO). Shares of AAPL have been on a tear in 2023, appreciating over 30% YTD, and while they could continue to fluctuate, I believe the trend will continue higher throughout 2023. AAPL is off its 52-week high of $176.15 by roughly 7.93%, and I believe shares can exceed $180 by 2024.

Apple’s Q1 results indicate a slowdown in business which could be looked at as a headwind for the 2023 fiscal year
Some of the critiques from AMZN’s Q1 results was that sales were compressing. AAPL doesn’t report on a calendar basis as their fiscal year is 10/1 – 9/30. AAPL’s Q1 sets the tone for the year as this incorporates the holiday season, where retail companies see increased sales. AAPL started the 2023 fiscal year in a negative position YoY. In Q1 of 2023, total revenue decreased by -$6.79 billion or -5.48%. As top-line revenue declined YoY, so did every line of profitability. Gross profit declined by -7.21%, net income declined by -13.38%, EBITDA compressed by -11.89%, and FCF decreased by -31.58%.

AAPL is broken up into 5 product segments which include iPhone, Mac, iPad, Wearables Home and Accessories, and Services. Sales in iPhones which is their largest segment, declined by -8.17% or 0$5.85 billion, while Mac saw sales decrease by -$3.12 billion, and Wearables compressed by -$1.22 billion. While overall YoY quarterly sales declined, Services saw a 6.41% increase, while iPads saw 29.64% in YoY growth.

The overall decreased revenue, increased cost of goods, and operating costs have led to compressed margins. In Q1 of 2023 gross profit has compressed -0.80% YoY, while the net income margin declined -2.33%, EBITDA -2.42%, and FCF -9.84%.

Nobody likes to see reduced growth rates, and with Q1 being AAPL’s strongest quarter, they are starting 2023 behind 2022’s numbers. It didn’t help that news broke about global PC shipments declining by -29% in Q1 after growth was expected. The IDC’s worldwide quarterly personal computing device tracker indicated that AAPL specifically witnessed -40.5% in YoY growth as Mac sales were impacted, which is being correlated to another sequential decline in revenue for the Mac segment in the upcoming quarterly results.

Apple’s price targets and analyst consensus
In April, there were 38 analysts covering AAPL, with 28.95% placing a strong buy on the stock, 55.26% having a buy rating on AAPL, and 16.22% maintaining a hold rating. Not a single analyst has an underperform or sell rating on shares of AAPL. In April, Bank of America maintained its neutral rating, while Credit Suisse upgraded AAPL to outperform, and Canaccord Genuity placed a buy rating on shares of AAPL. The average price target for shares of AAPL from the group is $170.39, and the high is $205.

In their 2022 fiscal year, AAPL produced $6.11 in EPS. AAPL started off 2023, missing the Q1 earnings consensus estimates by -$0.07. The analyst consensus for EPS in 2023, according to 43 analysts, is $5.98, which is a decrease of -$0.13, and 39 analysts see EPS in 2024 increasing to $6.60. The consensus is that 2023 will slightly miss AAPL’s record-breaking year in 2022. This could be a headwind because if AAPL misses earnings in Q2, we could see market psychology take over and a period of people worrying about AAPL’s ability to maintain its previous trajectory.

Why I am still very bullish on Apple, and even if 2023 is a year of treading water, I still believe Apple is in a position to accumulate
There are many reasons I am bullish on AAPL, but return of capital is at the top of the list. When I think of great companies I think of The Coca-Cola Company (KO), Amazon (AMZN), PepsiCo (PEP), and The Home Depot (HD) to name a few. No company, to my knowledge, has returned as much capital to shareholders since its inception compared to AAPL. Since 2012, APPL has returned $740.3 billion to shareholders, which includes $573.3 billion in buybacks and $135.6 billion in dividends. From 2018 – 2022, AAPL averaged $77.28 billion in annual buybacks, with its largest year coming in 2022 with $88.2 billion in buybacks. AAPL has started 2023 off by buying back $19 billion worth of shares in Q1. KO’s market cap is $271.22 billion, PEP has a market cap of $251.44 billion, and HD’s market cap is $294.78 billion. To put things in perspective, AAPL has returned more through buybacks than the entire value of KO, PEP, or HD. AAPL’s buybacks are also equivalent to more than half of AMZN’s market cap.

The reason why the return of capital through buybacks is one of the reasons why I am very bullish on AAPL is because of the impacts it has on EPS. Over the past decade, since 2013, AAPL’s outstanding shares have declined from 25.19 billion to 15.82 billion. AAPL has reduced its share count by -37.96% as they have repurchased over 9.37 billion shares. This is beneficial for shareholders because the amount of earnings from operations generated continues to be divided over fewer shares with each buyback. This can help increase EPS, and when earnings decline a bit, the reduced number of shares softens the blow. If you look at 2018 and 2019, AAPL’s earnings from operations declined by -7.18% from $59.53 billion to $55.26 billion. Their EPS only declined by a third of a percent as YoY EPS was impacted by -$0.01 as they generated $2.99 in EPS rather than $3. This is because AAPL repurchased 1.21 billion shares in 2019, and the earnings were spread across 17.77 billion shares rather than 18.98 billion shares. Buybacks also allow AAPL to benefit on an EPS basis from earnings remaining stagnant or increasing. In a flat environment YoY, EPS will increase because the earnings generated are spread across less shares, and when earnings increase and shares are being repurchased, it amplifies the effects and provides an additional boost to EPS.

In Q1 of 2023, AAPL returned over $25 billion to shareholders as AAPL continued to generate large amounts of cash flow. This included $3.8 billion in dividends and equivalents and $19 billion through open market repurchases of 133 million shares. AAPL ended Q1 with $165 billion in cash and marketable securities while repaying $1.4 billion in maturing debt and decreasing commercial paper by $8.2 billion. AAPL has a total debt position of $111 billion with $54 billion in net cash and maintains its goal of becoming net cash-neutral over time. Here is the aspect to remember, in Q1 2023, AAPL generated $30 billion in pure profit on the bottom line and $30.22 billion in FCF. They operate the largest printing press for cash outside of the federal reserve. Having a net cash position of $54 billion while generating tens of billions in pure profit each quarter makes it increasingly difficult to become net cash neutral. AAPL will continue to be in a position to allocate tens of billions toward buybacks each quarter, as their average buyback in the previous 5 quarters has amounted to $21.84 billion. Shares of AAPL started the year around $125, and if AAPL allocates $20 billion toward buybacks at an average price of $150, they will buy back an additional 133.33 million shares in Q2 2023.

Outside of buybacks, AAPL is a profit center where 25.61% of every dollar in Q1 was pure profit. AAPL can endure a year of flat or negative growth on the topline and not be drastically impacted as it’s still the most profitable company in the market. In Q1, AAPL generated $30 billion in net income and $30.22 billion in FCF. If they average $20 billion of net income and FCF in Q2 – Q4, they will still generate over $90 billion in pure profit for the year. This puts them in a position to return massive amounts of capital to shareholders while investing in their future business endeavors.

Let’s not forget the immense success that AAPL has produced, growing a reoccurring revenue stream. Netflix (NFLX) generated $31.62 billion in revenue in 2022, and Services from AAPL generated $78.13 billion in revenue. Over the past 5-years, Q1 revenue in Services has increased by 127.47% from $9.13 billion to $20.77 billion. While hardware sales may fluctuate from time to time, AAPL has created a business segment that is quickly approaching $100 billion in reoccurring revenue within its ecosystem. As AAPL continues to grow, Services should continue to increase and eventually turn into a $100 billion line of business.

AAPL has a track record of success in every area it enters. The iPhone changed the smartphone market and, over a decade later, is still generating more than 50% of AAPL’s annual revenue. From their computers to the iPad, to smartwatches and headphones, AAPL delivers best-in-class products, and all of this is complemented by their Services. AAPL is expected to announce a headset in June, and if their other products are an indication of what is to come, AAPL could be a clear winner in the augmented reality space. AAPL is also opening its first store in India next week in Mumbai, which has a population of 21.29 million people. AAPL’s 2nd store in India will open in Delhi on 4/20, following the Mumbai store, and Delhi has a population of 32.94 million people. AAPL is making a big play in India as they are tripled their iPhone production in India, which accounts for 7% of total iPhones. India has the 2nd largest population in the world, and AAPL is just getting started by enhancing its manufacturing infrastructure and starting a retail empire in India. SeekingAlpha

Conclusion
I think AAPL is a strong buy regardless of their YoY Q1 declines. Inflation is declining, and some suggest that we will see large declines over the summer as the current rent data is represented in the Feds numbers. If the Fed pivots and the markets rally, I don’t see a situation where AAPL doesn’t benefit. AAPL should generate around $90 billion in profits for 2023 and will continue to buy back shares while investing in India and developing new products. My prediction is that shares of AAPL can reach $180 in 2023, but looking out to 2024, I think shares can easily exceed $200. As the macro environment changes, and inflation declines, AAPL’s cost of revenue and operating expenses should decline, while spending should increase due to more expendable capital being available. I think 2023 will be a springboard for 2024 as AAPL expands its empire and continues returning tens of billions in capital each quarter to shareholders.