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Apple Inc.’s Asia supply chain seems to be picking up more quickly than feared, and that’s one reason Wells Fargo analyst Aaron Rakers feels more optimistic about the company’s stock.
He upgraded Apple shares AAPL, +4.88% to overweight from equal weight Friday, writing that shares look attractive following the recent market selloff.
“While it is still admittedly difficult (impossible) to gauge the fundamental impact Apple may realize from the COVID-19 outbreak, at current levels we think shares offer a compelling risk / reward for long-term patient investors,” he wrote, referring to the disease caused by the novel coronavirus that is believed to have originated in Wuhan, China late last year.
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He’s encouraged that Foxconn, which manufactures iPhones and other devices for Apple, appears to be “ramping labor capacity” more quickly than expected after factories throughout Asia initially faced extended Lunar New Year holidays and difficulty getting workers back to their cities due to local lockdowns.
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Apple said Thursday it has re-opened all its 42 stores in China which were closed due to the spread of the coronavirus outbreak.
Rakers also likes Apple’s longer-term prospects after the coronavirus outbreak gets under control. The company’s ability to benefit from a wave of upgrades around the introduction of 5G connectivity “is a when versus if.” And he’s upbeat that Apple can continue to extend its brand and deepen brand loyalty through its wearables, home, and accessories category, which includes fast-growing product lines like the Apple Watch and AirPods.
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From a capital-return perspective, he argued that the company’s strong cash position and free-cash trajectory could allow it to “accelerate” its goal of becoming net-cash neutral over time. Apple typically provides an update on its capital-return priorities during its March-quarter earnings call.
Apple shares are up 6.4% in Friday morning trading amid a broader rally for U.S. stocks. Shares are still off 19% over the past month, as the Dow Jones Industrial Average DJIA, +2.97% has lost 25%.
