Apple's Strategic Moves Impresses Analyst as Buffett Adjusts Stake

Zinger Key Points
  • Apple boosts shareholder returns: Announces record $110 billion buyback and raises dividend to $0.25 per share.
  • Buffett trims Apple stake for tax reasons: Still expects it to be Berkshire's largest holding by year-end.

BofA Securities analyst Wamsi Mohan reiterated a Buy rating on Apple Inc AAPL with a price target of $230.

During the fiscal second-quarter earnings call, management announced that the board had authorized an additional $110 billion for share buybacks, the largest in the company’s history and ahead of Mohan’s $90 billion expectations. Apple raised its dividend by 4% to $0.25 per share in the quarter.

Also Read: Thanks To Apple, This Analyst Is Optimistic On ARM, Microchip Technology And More Ahead Of Earnings

The analyst also flagged that at Berkshire Hathaway Inc’s BRK BRK annual general meeting, Warren Buffett elaborated on Berkshire Hathaway’s reduced stake in Apple from $174.3 billion (end of December) to $135.4 billion (end of March) implying sale of close to 115 million shares in the quarter. 

Buffett hinted at tax reasons for his decision to cut his stake in Apple and noted that he expects Apple to remain the largest holding in the portfolio by the year’s end.

The re-rating reflected Apple’s position as a generative AI beneficiary at the edge, with gross margin upside and momentum in services. 

Operating margins in China declined year-on-year, but every other geography increased. 

Mohan noted that this was a function of Apple’s attempt to be marginally more aggressive in pricing and a function of the mix. While iPhone sales grew in Mainland China, they declined in Greater China.

On the litigation front, Apple noted that the European Commission opened two formal noncompliance investigations under the EU DMA (Digital Markets Act) and addressed the DoJ lawsuit alleging smartphone monopolization, where the company intends to defend itself vigorously, Mohan said.

Apple’s manufacturing purchase commitments in the fiscal second quarter of 2024 declined (10)% sequentially and (16)% year-on-year to $34.2 billion from $38 billion in the prior quarter, the analyst highlighted. 

The sequential decline is lower than the 28% sequential decline seen in the December quarter but also lower than the +38% sequential increase seen in September, in which Apple introduced several new products, including the iPhone 15 series and Apple Watch Series 9/Ultra 2. 

The first half is seasonally lower in purchase commitment compared to the second half, Mohan added. Apple’s inventory declined 4.3% to $6.2 billion.

In the second quarter, Apple returned approximately $27.3 billion to its shareholders, with $23.5 billion in share repurchases through open market transactions and $3.7 billion in dividends and equivalents, Mohan said.

Mohan projected third-quarter revenue and EPS of $84.95 billion and $1.35.

Price Action: AAPL shares traded higher by 0.48% at $182.59 at the last check Tuesday.

Also Read: Apple Strengthens Supply Chain in China While Growing Presence in Southeast Asia and India

Image – Apple

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