Apple stock supported by cash flow strength, Melius maintains Buy rating

On Tuesday, Melius reaffirmed its Buy rating and $265.00 price target for Apple Inc. (NASDAQ:AAPL). The firm's outlook remains positive as Apple prepares for a CFO transition, with Kevan Parekh set to take over on January 1, 2025. Luca Maestri, who recently marked his 10-year tenure, will be moving to lead Corporate Services.

Luca Maestri's legacy includes Apple's effective cash return strategy and the expansion into services, which have been key pillars of the company's investment thesis. Under his guidance, Apple's earnings calls became a reliable source of data, and the company saw significant improvements in disclosures regarding its installed base and paid subscriptions. The analyst noted that these practices are expected to continue under Parekh, who has been part of the team for the last decade.

Apple's financial health is highlighted by its free cash flow, which has consistently outpaced net income. Maestri's tenure saw a 35% reduction in share count, and Apple's partnership with companies like OpenAI has enabled efficient capital expenditure management. The company's aggressive stock buyback strategy, with $29 billion in repurchases in the June quarter alone, is set to continue, potentially exceeding $30 billion per quarter.

Looking forward, the firm anticipates that Apple's new CFO will be able to support significant dividends and buybacks over the next three years, coinciding with a multi-year upgrade cycle for iOS devices. The price target of $265 is based on a 30x multiple of the projected FY26 earnings per share of $8.70, which the analyst suggests could be a conservative estimate.

In other recent news, Apple Inc. has announced a major transition within its executive team. Luca Maestri, the company's Chief Financial Officer (CFO), is expected to step down from his role on January 1, 2025. Kevan Parekh, currently serving as Apple's Vice President of Financial Planning and Analysis, is set to assume the CFO position. This change is part of a well-structured succession plan that aims to ensure a smooth transition.

Various analyst firms, including Evercore ISI, Citi, JPMorgan, and Morgan Stanley, have maintained their respective ratings and price targets on Apple's shares. These firms anticipate that the transition will be smooth and that no major strategic shifts will occur in the company. They also expect Apple to continue its focus on share buybacks, dividends, and selective mergers and acquisitions.

Simultaneously, Apple has announced amendments to its corporate bylaws to refine the process for shareholder proposals and director nominations.

InvestingPro Insights

As Apple Inc. (NASDAQ:AAPL) transitions to a new CFO, its financial stability remains a point of interest for investors. InvestingPro data marks the company's market cap at an impressive $3.45 trillion USD, underpinning its status as a tech giant. With a P/E ratio of 34.28 and a slightly lower adjusted P/E ratio for the last twelve months as of Q3 2024 at 33.88, the company's valuation is high, which may reflect investor confidence in its continued growth and profitability.

Two InvestingPro Tips that resonate with the article's sentiment include the fact that Apple has raised its dividend for 12 consecutive years and that 18 analysts have revised their earnings upwards for the upcoming period. This suggests a strong track record of returning value to shareholders and an optimistic outlook on the company's financial performance. For those seeking a deeper dive into Apple's financial metrics, InvestingPro offers additional tips and insights at https://www.investing.com/pro/AAPL.

The analyst's anticipation of continued support for significant dividends and buybacks is further substantiated by Apple's history of dividend growth, with the last twelve months showing a 4.17% increase. Moreover, Apple's robust free cash flow and efficient capital expenditure management, as evidenced by its partnership with companies like OpenAI, are likely to sustain its aggressive stock buyback strategy. With the company's financial health in focus, these insights from InvestingPro may offer valuable context for investors monitoring Apple's fiscal strategies under new financial leadership.

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