The Apple Inc. (NASDAQ: AAPL) share price is proving to be far more resilient than the broader tech sector, but don't be fooled into thinking it's running out of puff.
That's the view of Morgan Stanley as the broker believes the iPhone maker is on an earnings upgrade path when it releases its quarterly results.
Shares in Apple dipped less than 3% since the start of the year even as the COVID-19 pandemic struck and sent global equities, including the S&P/ASX 200 Index (Index:^AXJO), tumbling into a bear market.
Interestingly, the performance of our WAAAX tech darlings are on par or better than Apple's, with the exception of WiseTech Global Ltd (ASX: WTC).
On stronger footing
However, I digress. There are a few reasons why the Apple share price is holding up better than the market. Its strong financial position is one with Morgan Stanley saying Apple has the "highest quality balance sheets of any public company".
The broker also pointed out that the stock sits on a 7.8% yield if you included dividend payment and share repurchases. That's a pretty big yield for a NASDAQ stock.
There's also the tech giant's large loyal customer base and strong retail investor demand for its stock.
Profit upgrade potential
The March quarter numbers will be largely a non-event and the fallout from the coronavirus-recession is well documented.
But Morgan Stanley believes its June quarter guidance will be better than its expecting, and the outlook will send the stock jumping higher.
"While there is a small risk that Apple does not guide for the June quarter, we believe the more likely outcome is that Apple guides to a wider range than typical," said the broker.
"Recent data gives us confidence that the midpoint of management's revenue guidance range is likely to beat our forecast of $46.7B."
Multiple tailwinds
There are a few reasons for Morgan Stanley's optimistic take on the stock. After the pandemic forced the shut down of Apple's Chinese manufacturing partners, the latest air quality data indicates a turnaround.
Factories at four key locations suggests production is running at above season levels through April.
Growing dividends
There are signs that demand for iPhones are also ticking up from the lows hit four weeks ago and the expected launch of new 5G models provides a further growth catalyst for the stock.
What will also please investors is the broker's expectations that the tech behemoth will authorise the increase in its share buyback by at least US$75 billion and lift its dividends by a mid-to-high single digit percentage.
Morgan Stanley rates the stock as "overweight" (which is a "buy") with a price target of US$298 a share.
