Evercore ISI lifts Apple stock price target to $275 from $260

On Tuesday, Evercore ISI maintained an Outperform rating on Apple stock (NASDAQ:AAPL) and increased its price target to $275 from the previous $260. The firm’s analyst cited a comprehensive annual review that delved into Apple’s key investment themes and the company’s potential to continue as a "tech staple," projecting sustainable mid-single-digit revenue growth and low-to-mid-teen growth in earnings per share (EPS) and free cash flow (FCF) over the coming years. According to InvestingPro data, Apple currently trades at a P/E ratio of 34x and appears overvalued based on its Fair Value analysis. The company maintains a "GOOD" overall financial health score, particularly excelling in profitability metrics.

The report highlighted that while the focus tends to be on iPhone sales growth, there is less attention paid to Apple’s consistent EPS and FCF growth, driven by gross margin improvements, operational leverage, and share buybacks. Indeed, InvestingPro data shows that management has been aggressively buying back shares, while maintaining an impressive gross profit margin of 46.5%. Additionally, the analysis pointed out that Apple is well-positioned to capitalize on artificial intelligence (AI) monetization without the need to invest its FCF into graphics processing units (GPUs).

Evercore ISI’s primer focused on several key growth initiatives for Apple, including expansion into emerging markets such as India, innovations in Apple Intelligence, ventures into healthcare, advertising, and payments, and their potential contributions to Apple’s profit and loss statement. The report also provided a detailed breakdown of the services model, predicting over 12% growth and noting that the value of new offerings and increased average revenue per user (ARPU) is underappreciated.

The firm also examined Apple’s wearables segment, suggesting significant room for growth in market penetration. An in-depth analysis of gross margins by product and category revealed multiple factors that could lead to margin expansion. Furthermore, the report addressed key regulatory debates and their potential impact on the company.

In conclusion, the analyst expressed confidence in Apple’s ability to sustain mid-single-digit sales growth and low-to-mid-teen growth in FCF and EPS over the next several years, with less volatility and high consistency. Evercore ISI’s stance is that Apple’s strong FCF generation, coupled with its commitment to returning 100% to shareholders, supports the possibility of sustaining or even expanding its current valuation. The firm’s bullish case for Apple stock is set at $375. InvestingPro reveals that Apple has maintained dividend payments for 14 consecutive years and achieved a robust return on assets of 27.6%. For deeper insights into Apple’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, Apple Inc. faced a legal setback in Germany as its appeal against a regulatory assessment was rejected by the Federal Court of Justice. This decision upholds the German cartel office’s classification of Apple as a company with significant cross-market influence, subjecting it to stricter controls. In China, shipments of foreign-branded smartphones, including those from Apple, saw a 21% decline in January, as reported by the China Academy of Information and Communications Technology. Meanwhile, Apple’s Siri enhancements are experiencing significant delays, with internal dissatisfaction growing due to postponed launches of key features initially planned for release in the spring. The fourth season of the popular series "Ted Lasso" has been confirmed by Apple TV+ and will feature Jason Sudeikis returning as the titular character. A secret hearing in the UK took place concerning Apple’s appeal against a government mandate to create a "back door" into its encrypted cloud storage systems. The hearing has raised privacy concerns, and details remain undisclosed.

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