Apple Stock has become more secure and with a better growth profile, analysts say


A stock’s valuation reflects not only its growth prospects, but also the risks. After all, many consumer staples and utilities stocks don’t show strong growth, but still trade at price-to-earnings (P / E) ratios in their 1920s or even 1930s, due to their activities at. low risk and recession resistant.

Maybe we can trace Apple‘s (NASDAQ: AAPL) the excellent performance of equities over the past few years to this dynamic of greater perceived security, rather than just growth – although growth has also been solid. Gains from the stock outpaced both revenue and earnings per share (EPS) growth, as Apple’s P / E ratio rose significantly.

AAPL data by YCharts. TTM = 12 month training.

While part of the rise is undoubtedly due to improved growth prospects, due to the upcoming 5G cycle as well as the growth of new services such as Apple TV +, at least part of the rise is also due to change in perception of Apple’s security.

Moody’s raises Apple’s rating to level only two other companies enjoy

December 21, Moody’s (NYSE: MCO) upgraded Apple to its highest rating, AAA. After the upgrade, it is one of only three companies to enjoy this ultra-elite status, with Microsoft (NASDAQ: MSFT) and Johnson & johnson (NYSE: JNJ).

This honor is quite a change from just five years ago, when Apple was seen by many as nothing more than a cyclical device maker, rather than a sticky brand ecosystem with very loyal customers and an emerging division of recurring services.

Of course, Warren Buffett (who also owns the Moody’s shares, coincidentally) was smart enough to see Apple differently, and started buying the shares in 2016, with an average cost base adjusted to the current split of $ 34.25. , down from a price of around $ 178 today. .

During the upgrade, Raj Joshi, analyst at Moody’s, said: “Apple’s very strong business profile reflects its substantial operational scale, a large installed base of products and users of its services, strong loyalty of customers and high-end brand positioning.

The note also praised Apple’s balance sheet and other resilient attributes, Joshi noting that Apple has “an exceptionally strong liquidity profile over the next three to five years.” That liquidity is expected to come from profits powered by 5G, strengthening Apple’s balance sheet, which already stands at $ 190.5 billion in cash and cash equivalents, against just $ 124.7 billion in debt.

A middle aged woman is smiling at her phone at the kitchen table with coffee.

Apple’s debt and equity were both recently revalued. Image source: Getty Images.

Apple was also recently upgraded by stock analysts

While Moody’s upgrade reflects a better view of Apple’s security profile, the company also received a positive rating from stock analysts at Bank of America (NYSE: BAC) (another participation of Warren Buffett!) on December 14th. Analyst Wamsi Mohan believes Apple is going to experience a strong iPhone upgrade cycle in fiscal 2023, and he predicts that it will also introduce a virtual reality headset that year as well.

This thesis seems to indicate that Mohan believes that 5G connectivity is going to be a real game-changer for consumers in about a year. Applications that kill 5G will not develop until the network is built, which is currently underway. Telecommunications companies are currently struggling to develop mid-range 5G across the country, which takes a lot of capital and time. Yet by next year much of this infrastructure will have been deployed and accessible to smartphone customers.

Regardless, between upgrading Moody’s to Apple’s security profile and upgrading BofA to improving the company’s medium-term growth prospects, it is not amazing that Apple is currently climbing near all-time highs and approaching a market cap of $ 3 trillion as the world’s most successful company.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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