Apple Stock Forecast: What To Consider For The Rest Of 2021 (NASDAQ:AAPL) (2024)

Apple's (NASDAQ:AAPL) stock has rallied close to 15% on a year-to-date basis, despite a slight hiccup following management's warning of decelerating service revenue growth rates and temporary production impacts on the iPhones and iPads due to ongoing supply chain constraints ahead. The stock's uptrend has maintained its momentum in recent weeks, as investors turn their eyes to the most highly anticipated Apple launch event of the year, which typically takes place in September, coupled with the anticipated surge in sales driven by fast-approaching back-to-school and holiday season demands.

Apple's performance for the rest of calendar 2021 will be primarily underpinned by the upcoming launch of the iPhone 13 and other feature upgrades, all of which have been strategically curated to maximize capitalization on evolving post-pandemic consumer preferences and behaviours. The company has also been swiftly navigating through the supply chain constraints that have sent shock waves throughout the broader tech industry - despite earlier warnings of increasing supply chain pressures ahead that could impact iPhone and iPad production levels, Apple has been resilient and already frontloaded its request to suppliers to up productions of the new-generation iPhones to 90 million units before the end of the calendar year, representing an increase of 20% compared to the typical initial production levels of 75 million units. And a recent decision by Apple to allow developers of "reader apps" to redirect user payments to external websites is also expected to help put out some of the regulatory fires it has been dealing with in recent months, further alleviating some of the headwinds it has been experiencing in the first half of the year.

The rising global demand for Apple's products and services, coupled with the company's ability to accommodate post-pandemic consumption patterns with new product and feature launches later this year is expected to further enhance its financial performance, and consequently bolster the stock's upside potential. Consistent with our recent analysis on the stock following the release of its June-quarter results, our outlook and 12-month price target remain bullish at $170.91, representing near-term upside of more than 11% based on the last traded price of $153.65 on September 2nd.

A Boost from Upcoming Product and Feature Launches

Although Apple has yet to announce a date, the next generation of iPhones and other Apple products are near, based on the historical timeline for its largest launch event of the year, which typically happens in September. In addition to the highly anticipated iPhone 13, fans of the brand also have their eyes on new Apple Watches, iPads, MacBooks, and AirPods. The anticipated upgrades have seemed to be strategically paired with evolving post-pandemic demands, including contactless payment and identification verification solutions, portable computing devices that can support agile working conditions, and health-centric technology, which are expected to drive higher sales across the board for the tech giant.

iPhone Upgrades

Despite the slump in iPhone sales observed during the pandemic-stricken first half of 2020, Apple's launch of the 5G-enabled family of iPhone 12 devices in late 2020 was met with high demand. The active installed base of iPhones subsequent to the launch reached a new all-time high during the March-quarter, with over 99% customer satisfaction achieved for the iPhone 12 family. The sales momentum experienced with the iPhone 12 is expected to carry forward onto the iPhone 13 as Apple continues to benefit from 5G smartphone upgrades and an anticipated improvement to the broader smartphone market underpinned by the global post-pandemic economic recovery. Although the technological features of the iPhone 13 are not expected to differ significantly from the iPhone 12, other than improved camera quality and processing speeds, Apple is preparing to sell as many as 90 million units of the new-generation device between the time of launch and the end of calendar 2021; this marks the largest launch cycle in the history of iPhones, as initial production runs have typically settled at 75 million units in recent years.

The 20% increase in next-generation iPhone production levels is a sign for additional demand ahead as global 5G device upgrades start to gather pace, especially with the help of cell-phone carriers as they look to generate returns from their years of investments into the rollout of 5G wireless service. Reputable wireless carriers in the U.S., Apple's largest market, have been keen on promoting the sale of 5G-enabled devices, including the iPhone 12, in recent months with enticing offers in hopes of boosting their 5G network sign-ups. The strategy has been proven successful, with both Verizon and AT&T topping earnings estimates in the past quarter thanks to positive consumer response to 5G upgrades. The upcoming launch of the iPhone 13 by Apple, coupled with the annual back-to-school and holiday season phone promotions by wireless carriers are expected to mutually bolster demand for one another, supporting Apple's anticipation for additional demand ahead for its next-generation iPhones. Qualcomm, the largest smartphone chipmaker in the world, has also credited rising 5G adoption for its bullish quarterly guidance, which further corroborates Apple's positive outlook on the demand for its 5G-enabled iPhone 13 devices through to the end of the year.

The anticipated growth trends for Apple's iPhone segment for the rest of calendar 2021 further supports our expectations for iPhone sales to reach $192.9 billion by the end of the fiscal year, and continue to grow in line with market projections at a compounded annual growth rate ("CAGR") of 11.2% towards $260.5 billion by fiscal 2026.

Source: Author, with data from our internal financial forecasts (Apple_-_Forecasted_Financial_Information.pdf).

The All-New iPads and MacBooks

In addition to the iPhone 13, Apple's family of iPads is also slated for a makeover to further its appeal to growing demands for multi-purpose tablets in the post-pandemic era. The all-new iPad Mini featuring slimmer borders is expected to make its debut with the iPhone 13 later this month, while the iPad Pro is expected to launch in 2022 with an exterior makeover featuring a glass back and wireless charging capabilities. A slimmer entry-level iPad geared towards students is also in the books for Apple's anticipated September launch event. Apple will also be launching revamped MacBooks equipped with "faster processors, new designs and improved connectivity to external devices", the first major upgrade since 2019. The improvements are aimed at satisfying heightened user demands for affordable, convenient and reliable portable devices to facilitate agile working and studying arrangements in the post-pandemic era, and further the sales momentum observed on the product segment over the past year during pandemic lockdowns, which had bumped Apple's rank in global PC sales to fourth place. The company accounted for 15% of the U.S. market during the beginning of the year.

The upcoming launch of upgraded iPads and MacBooks is expected to strengthen Apple's performance through to the end of the year, and further bolster our base-case projections on Mac and iPad sales of $10.7 billion and $7.6 billion for the coming September-quarter, respectively. This would accordingly translate to projected annual Mac and iPad sales of $36.7 billion and $31.2 billion, respectively, for fiscal 2021. And the two revenue streams are expected to further grow in line with historical performance and market expectations at a CAGR of 7.2% and 9.6% towards $51.8 billion and $49.3 billion, respectively, by fiscal 2026.

Source: Author, with data from our internal financial forecasts.

Health-Centric Apple Watch

The upcoming launch of the Apple Watch Series 7 is also expected to feature major health-centric technological enhancements such as blood pressure measurement, fertility tracking and fever detection, in addition to improved displays and processing speeds. The upgrades are expected to draw higher capitalization on evolving consumer preference for technology supportive of their pivot towards prioritizing health and wellbeing in the post-pandemic environment. There have been rumors of a production delay on the newest wearable technology, due to technological difficulties caused by design complexities. These issues have been made worse by pandemic-related disruptions and have made collaboration between Apple and its manufacturers difficult. The pact has been "working around the clock" to resolve the issues and put the product into mass production before the end of the calendar year, if not in September. However, the anticipated launch of the product is still expected to occur in the coming weeks along with the iPhone 13 and other upgraded computing devices. This is expected to lift investors' outlook on the tech giant's continued bullish performance as the Apple Watch continues to lead the company's Wearables, Home and Accessories product segment sales.

Our base-case forecast for Apple's Wearables, Home and Accessories product segment revenues for the end of the fiscal year remains unchanged from our previous coverage at $39.2 billion. The upcoming launch of the upgraded Apple Watch Series 7 is expected to drive a higher capitalization rate on increasing consumer preference for health-oriented technology, and further underscores our base-case projections for the current fiscal year. The product segment's sales are expected to further increase at a CAGR of 10.0% towards $63.1 billion by fiscal 2026, which will be primarily led by the sale of Apple Watches amongst other smart home appliances and tech accessories within the product segment, as global demand for wearable technology is expected to see accelerated growth at a CAGR of 18% over the forecasted period due to evolving consumer demands.

Source: Author, with data from our internal financial forecasts.

Wallet Feature Upgrades

Apple's recent announcement to allow the addition of driver's license and state identification documents to the Apple Wallet for use at participating airports across eight states - including Arizona, Georgia, Connecticut, Iowa, Kentucky, Maryland, Oklahoma, and Utah - is another strategic play on frontloading technological features that will be critical in the post-pandemic norm. The new feature, which Apple had hinted it was working with the Transportation Security Administration on from back in June, will be the first of its kind and is expected to attract further demand for its Apple-Wallet-compatible devices in the U.S. as Americans look for a "touchless airport experience" once borders reopen and post-pandemic travels resume.

The feature has already been tried and tested on mobile student identification cards across universities in the U.S. and Canada, which allows students to access campus and pay directly from their virtual Apple Wallets. This is a strong indicator that the same feature will also work for global travel documents in the foreseeable future, pending overseas government security approval. And once the feature to include legal identification documents in the Apple Wallet becomes globally recognized, it is expected to drive a higher installed base of the iPhones and Apple Watches, which are currently the only devices compatible with the Apple Wallet, and further Apple's global market penetration in the long-run.

Regulatory Settlements

Apples recent decision to allow developers for "reader apps" that distribute content like newspapers, books, video and music to redirect user payments to an external link and exempt them from the typical 30% commission levied on in-app transactions has further alleviated risks of stymied growth for the tech giant amid rising sentiments on regulatory violations. The rule change, which will go into global effect starting early next year, settles an ongoing investigation by Japan's Fair Trade Commission over Apple's anti-competitive behaviour exhibited through the App Store's payment practices. It also follows South Korea's enactment of a new bill that will effectively abolish app store operators' ability to require online payments be made through their respective in-app systems in the country, setting precedent for other countries, including the U.S. and India, that have expressed similar scrutiny over said payment practices.

However, the new change is not expected to materially impact Apple's overall financial performance, as commission fees generated from payments in reader apps account for less than 13% of App Store sales. Meanwhile, the commission-fee structure on in-app payments for mobile games, which currently account for about 70% of App Store sales, remain unchanged. Apple will maintain its 30% commission charge on gaming app makers, and reduce the fee to 15% if in-app transactions exceed $1 million a year.

In addition to the in-app payment rule change for reader apps, Apple's continued efforts in fending off global antitrust scrutiny also include the settlement of a class action lawsuit with U.S. app developers who have claimed the company had overcharged them for distributing their apps through the Apple App Store. The settlement involves a one-time payment of $100 million from Apple to app developers involved in the lawsuit, and a new policy that officially allows developers to promote external payment methods via mediums outside of the app. However, in-app advertisem*nts for external payment methods remain prohibited for mobile gaming apps, leaving Apple's broader policy on its in-app payment commission fee structure unchanged.

Although both recent policy changes will not immediately resolve other ongoing antitrust scrutiny and legal disputes, it addresses some of the key concerns that regulators have raised. Even Spotify CEO Daniel Ek - a long-time critic of Apple's commission system - has applauded the policy changes as a "step in the right direction", which builds a case for Apple's increasing eagerness to embrace greater competition and further alleviates the risks on growing antitrust sentiments in the long-run.

Navigating Supply Chain Constraints

Despite earlier warnings of supply chain constraints that could lead to north of $4 billion in adverse impacts to the upcoming September-quarter's financials, the ongoing chip shortage is no longer expected to affect the production of the new iPhones. Apple has already pressed forward with outsized chip orders months in advance from its Asian suppliers as part of ongoing efforts to alleviate supply chain pressures and ensure streamlined execution of its largest launch cycle for the next-generation iPhones expected for later this month. The recent announcement to up the initial production run on the iPhone 13 devices from 75 million units to 90 million units bolsters Apple's ability in mitigating the ongoing supply chain constraints once again, and further supports expectations for strong double-digit sales growth for the upcoming September-quarter and through to the end of the calendar year.

Financial Prospects Recap

The foregoing analysis on Apple's recent developments suggest that the headwinds related to decelerated growth and supply chain impacts which management had warned about during the June-quarter earnings call may be less severe than expected. This further bolsters the company's positive financial prospects through to the end of the fiscal and calendar year, with strong double-digit year-over-year sales growth expected to persist for the fourth consecutive quarter. Our base-case forecast projects total net sales of $85.6 billion for the September quarter, which comprises of $67.6 billion in product sales and $18 billion in service sales, representing year-over-year growth of 35% and 24%, respectively. Total net sales for the current fiscal year are projected at $368.1 billion, up 34% from the prior year, and is expected to maintain accelerated growth at a CAGR of 8% towards $534.4 billion by FY 2026 as a result of increasing adoption and integration of technology and digital media in both professional and personal aspects of day-to-day routines.

Source: Author, with data from our internal financial forecasts. Please refer to our recent coverage here for further detail.

And consistent with management's guidance for the upcoming September quarter, gross profit margins are projected at 42.0% for the September quarter, which reflects the overall increase in average product prices, partially offset by higher freight costs ahead due to COVID-related disruptions. Combined with Apple's performance through to the June-quarter, the annual gross profit margin for fiscal 2021 is expected to remain at 41.7%, up from 38% observed in fiscal 2019 and fiscal 2020.

Source: Author, with data from our internal financial forecasts.

Based on Apple's projected sales performance and cost structure for the year, our base case forecast projects FY 2021 net income of $94.8 billion, which represents year-over-year growth of 65%. The bottom line is forecasted to experience further accelerated growth at a CAGR of 6.9% through to 2026, resulting in projected net income of $132.5 billion by then.

Source: Author, with data from our internal financial forecasts.

i. Base Case Financial Forecasts:

Source: Author, with data from our internal financial forecasts.

Apple Stock Valuation

Source: Author, with data from our internal valuation analysis.

Apple's positive business outlook for the remainder of the fiscal and calendar year further bolsters the 12-month price target of $170.91 we have set based on our recent analysis on the stock following the release of June-quarter results. This represents upside potential of more than 11% based on the last traded share price of $153.65 on September 2nd.

The price target is derived from a discounted cash flow ("DCF") analysis over a five-year discrete period in conjunction with the forecasted financial information discussed in earlier sections. Our valuation assumptions, including the WACC used to discount the projected cash flows and the exit multiple, remains unchanged from our last coverage on the stock, as the business' risk profile and the market's outlook on Apple's growth potential has not materially changed.

i. Base Case Valuation Analysis:

Source: Author, with data from our internal valuation analysis.

Conclusion

The remainder of fiscal and calendar 2021 is expected to be another period of accelerated sales growth for Apple, as it shifts its focus on materializing the growth strategies it has been piecing together during the earlier half of the year. The most highly anticipated launch event of the year, which most speculate to occur in mid-September, is expected to be an inflection point that will set the stage for further upside realization through to the end of the year and into 2022 as new products and features continue to roll-out and drive higher sales. In the near-term, the company will continue to benefit from surging demands for 5G upgrades, as well as other devices and services curated for post-pandemic era needs. And in the long-run, Apple's continued commitment to pioneering innovation, such as the ongoing development of satellite capabilities for iPhones to allow emergency calls in areas without cellular coverage and electric self-driving vehicles, is expected to drive higher sustainable growth and reinforce its position as a global industry leader by wide margins.