It’s been a disappointing year for Apple (NASDAQ:AAPL) investors so far, with the stock down over 7% for the year-to-date, despite the slight pullback over the last few trading sessions. Apple stock hit a 2024 intraday low of $168.49 on Thursday last week before rising to above the $173 per share mark in yesterday’s session (Tuesday, March 12).
However, they are still a long way off their $199.62 per share high achieved in December 2023.
Why Apple stock underperformed
Apple has been impacted by a number of headwinds, including iPhone demand concerns in the US and China, smartphone competition in China, flat growth and regulatory issues in the European Union.
The European Commission fined the iPhone maker more than €1.8 billion regarding what it said were abusive App Store rules for music streaming providers. Meanwhile, the resurgence of Huawei’s smartphones in China has been a driver of Apple facing stiff competition in the region.
Reuters recently said, citing research firm Counterpoint, that iPhone sales in China dropped 24% year-on-year in the first six weeks of 2024, while Huawei saw unit sales increase by 64% during the period.
Earlier this month, analysts at Evercore ISI commented on Apple's March quarter guidance, saying they think iPhone units are largely flat.
Redburn analyst James Cordwell cut the rating on Apple stock to Neutral, telling investors at the time that “each of the two parts of the business [Products and Services] faces some challenges” that they believed would limit any further multiple expansion for each of the components.
At a similar time, Piper Sandler analysts said they were concerned about Apple’s handset inventories entering into 1H24 and also felt growth rates had peaked for unit sales.
Apple stock buyback
Despite the negatives for Apple stock so far this year, analysts at Bernstein released a note focused on Apple stock buyback plan, stating they continue to see these as a key driver of Apple’s financial model.
“Since 2015, when iPhone growth began to slow materially, Apple has grown EPS at a ~13% CAGR. Revenues have grown at a compounded rate of 6.5%, while buybacks have added an average of nearly 500 bps per year to EPS growth during the period,” said the firm.
They added, “Apple’s buyback impact has been enabled by strong free cash flow realization, a high capital return rate, and modest stock dilution from stock-based compensation.”
Looking ahead, Bernstein feels that if we assume Apple’s stock trades at ~25x earnings and continues with its current dividend and SBC, the company “should be able to continue to reduce its net share count by ~3% to 3.5% per year, down from historical levels of 5%+ from 2015 to 2020.”
While Bernstein believes the buybacks are a key driver, the firm expects them to be 200 bps per year lower over the next five to ten years compared to the prior five to ten years. They also see Apple’s EPS growth in the high single digits.