On Monday, CFRA reaffirmed its Buy rating on Apple (NASDAQ:AAPL) shares, maintaining a price target of $260. The firm's analyst cited the potential of Apple's artificial intelligence (AI) capabilities and improving free cash flow (FCF) as reasons for the positive outlook. The price target is based on a price-to-earnings (P/E) ratio of 31 times the estimated calendar year 2026 earnings per share (EPS) of $8.30, which is set above historical averages to reflect the AI prospects.
The analyst maintained earnings forecasts for fiscal years ending in September 2025 and 2026 at $7.40 and $8.22 per share, respectively. With the September-quarter earnings release approaching on October 31, CFRA anticipates that Apple will provide clarity on iPhone demand amidst mixed signals. The firm also suggests that the decline in China's market, which has been ongoing for seven of the last eight quarters, may be reaching a turning point.
CFRA predicts that iPhone revenue will grow at a mid- to high-single-digit percentage rate in fiscal years 2025 and 2026, following no growth in fiscal years 2023 and 2024. The analyst believes that Apple's AI technology will be the most significant growth catalyst since the introduction of 5G, especially considering the aging installed base of devices.
The firm expects a 13% growth in Apple's Services sector for the September quarter and is looking forward to more details regarding the AI rollout, which is initially available only in English. The expansion of AI services internationally is anticipated to be a more significant story in calendar years 2025 and 2026.
Additionally, CFRA suggests that Apple may update its Macs this fall with new internal M4 processors and foresees a return to growth for the Wearables segment, following recent updates to the Watch and AirPods product lines.
In other recent news, Apple Inc. has seen a surge in iPhone sales in China, with a 20% increase for its new models compared to the previous year's iteration. This increase is particularly notable for the iPhone 16 Pro and iPhone 16 Pro Max models, which saw a 44% rise in sales. However, overall iPhone sales experienced a slight 2% decline, attributed to decreased demand for older models and increased competition from domestic manufacturers.
JPMorgan analysts maintained an Overweight rating on Apple shares (NASDAQ:AAPL), observing a shift in product availability trends for the company's latest iPhone models. The delivery lead times for the Pro models have begun to moderate, while the Base models saw a slight increase. The analysts also noted that the aggregate lead times for Apple's products decreased by three days compared to the previous week.
In the UK, retail sales experienced an unexpected increase in September, largely driven by the telecoms and computer sector. This coincided with Apple's release of its AI-focused iPhone 16 series. Despite concerns over potential tax increases, consumer spending appears to remain unaffected.
InvestingPro Insights
Apple's strong market position and financial performance are reflected in the latest data from InvestingPro. The company boasts a substantial market capitalization of $3.59 trillion, underscoring its status as one of the world's most valuable companies. This aligns with CFRA's bullish outlook and their $260 price target.
InvestingPro Tips highlight Apple's consistent dividend growth, having raised its dividend for 12 consecutive years. This demonstrates the company's commitment to returning value to shareholders, which could be attractive to investors looking for stable income alongside potential capital appreciation.
The company's P/E ratio of 35.78 indicates that investors are willing to pay a premium for Apple's shares, possibly due to the anticipated growth in AI capabilities and Services revenue that CFRA mentions. Additionally, Apple's strong return on assets of 30.59% for the last twelve months ending Q3 2024 suggests efficient use of its resources, which could support the projected improvements in free cash flow noted by CFRA.
For readers interested in a deeper dive into Apple's financials and market position, InvestingPro offers 16 additional tips, providing a comprehensive view of the company's strengths and potential challenges.
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