Apple Inc. stock gained a new fan on Wall Street late Thursday when Citi Research analyst Atif Malik began reporting with a buy rating.
“We believe the Street is underestimating the continued increase in gross margin,” he wrote in his note to clients, titled “A hardware company that thinks like a software company.”
Malik is optimistic that Apple’s AAPL is able to increase margins as the company continues to push consumers towards more expensive devices and configurations. Additionally, Apple has a “steady market share” with gains over Android devices and is poised to cut its own costs thanks to the development of its own custom chips.
“Additionally, a growing, higher-margin services revenue mix should help increase the company’s overall gross margin,” Malik continued, setting a $240 price target for Apple shares, which closed at $189.59 on Thursday.
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He sees a compelling opportunity for Apple in India, where the company may have had just a 5% market share in smartphone shipments over the past calendar year. Now Apple has two physical stores in the country, allowing consumers in the country to “experience the Apple brand” and buy phones directly. The stores can also improve Apple’s understanding of the market as the company looks to strengthen its positioning.
The company will benefit from the growth of the middle and upper classes in India, Malik said. These cohorts could increase their spending six-fold by 2030, he wrote.
“Overall, there will be nearly $2 trillion in additional spend for affordable mid-range offerings, paralleled by $2 trillion in additional spend as consumers move toward premium offerings or add new consumption categories,” Malik said in a wide-ranging discussion about groups’ purchasing power.
Apple can draw on its success in China, considering that in 2009 the iPhone accounted for perhaps just 2% of smartphone shipments in that country. This proportion is now around 17%, said Malik.
Other emerging markets such as Mexico, Saudi Arabia, Turkey and the United Arab Emirates also offer opportunities.
Malik’s upbeat assessment of Apple also comes as he doesn’t expect much from the Vision Pro headset the company recently announced.
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“We don’t expect the headset to be a significant driver of Apple’s overall sales anytime soon, as it won’t be available until early 2024, and we anticipate it will only last a few months.” [150,000 to 200,000] Units for the first few years,” Malik wrote.
Apple Vision Pro: How early adoption might compare to iPhone, Apple Watch and iPod
In other forward-looking moves, he explored Apple’s options for the auto market, noting that the company now faces “when and to what extent” it wants to get involved in such an effort.
“We believe the best solution is for Apple to become much more integrated with user behavior and automaker information than the current Apple CarPlay system,” he wrote.
While Apple continues to spend money on dividends and share buybacks, the company still has room to maneuver, which is likely why the company is considering moving into lower-margin markets.
“Furthermore, by 2025 we expect that the EV [electric-vehicle] “The total addressable market will be larger than the total smartphone, PC, tablet and wearables market combined,” Malik said.
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