BofA keeps Apple stock Buy rating, $240 target amid app store ruling

On Thursday, BofA Securities maintained a Buy rating on Apple (NASDAQ:AAPL) stock, with a price target of $240, following a recent court ruling affecting the company’s App Store. The ruling in question pertains to Apple’s ongoing legal battle with Epic Games, where a judge has mandated changes to Apple’s App Store policies. According to InvestingPro data, Apple, currently valued at $3.19 trillion, appears overvalued based on its Fair Value analysis, despite maintaining strong financial health with a "GOOD" overall rating.

The court order issued on Wednesday requires Apple to cease practices that were deemed anticompetitive, specifically those that restricted developers from communicating directly with app users and imposing additional fees on off-app purchases. Apple has agreed to comply with the directive but is planning to file an appeal against the decision. The company maintains robust financials with a 46.52% gross profit margin and generated $395.76 billion in revenue over the last twelve months.

The BofA Securities analyst, Wamsi Mohan, noted the incremental risk to Apple’s high-margin revenue stream due to the ruling. However, he emphasized the company’s ability to sustain earnings and gross margin benefits, as well as its potential to explore new markets over time.

The judge also took the significant step of referring the case to the United States Attorney for the Northern District of California to determine if criminal prosecution is warranted. Despite these developments, BofA Securities reaffirms its confidence in the resilience of Apple’s financial performance.

The ruling is the latest development in a series of legal challenges that Apple has faced regarding its App Store policies, which have been under scrutiny for their impact on competition and developer relations. Apple’s compliance and intended appeal indicate the company’s commitment to maintaining its App Store model while navigating the legal landscape. For deeper insights into how legal challenges might affect Apple’s valuation and business model, InvestingPro subscribers can access comprehensive Pro Research Reports, which provide detailed analysis of key metrics and risk factors for over 1,400 top stocks.

In other recent news, Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META) have reported quarterly results that exceeded expectations, leading to a significant boost in their shares. Microsoft’s third-quarter performance was driven by its strong cloud business, benefiting from the growing demand for AI services. Similarly, Meta not only surpassed expectations in its first-quarter results but also raised its full-year forecast for capital expenditures, focusing on AI investments. Meanwhile, Apple faced a setback as a federal judge ruled that the company violated a court order related to its App Store, impacting its shares negatively.

Analysts have been adjusting their outlook on Apple, with Loop Capital Markets lowering its price target to $215 while maintaining a Hold rating. The revision follows updates on iPhone production, although the firm noted Apple’s proactive approach in navigating the tariff environment. Barclays (LON:BARC) also reduced its price target for Apple to $173, maintaining an Underweight rating, and highlighted potential changes in iPhone production and demand forecasts. The firm anticipates a stronger than usual performance for the SE model but notes uncertainties due to trade policies and macroeconomic factors.

Furthermore, Deepwater Asset Management’s Gene Munster discussed Apple’s long-term positioning, focusing on tariffs, manufacturing in China, and AI development. Munster believes that despite challenges, Apple can continue to grow its revenue in line with market expectations. As Apple diversifies its supply chain and expands production in India, it faces ongoing challenges in reducing its reliance on China. Investors are closely monitoring these developments as Apple prepares for future product releases and adapts its strategies in response to external economic factors.

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