Andrew Kelly
September 16, 2022

Apple would fare better than other technology companies in the event of a economic downswing, according to Morgan Stanley.Analyst Erik Woodring said the broader market will feel the impacts of a weakening economy and companies’ earnings per share will see double-digit slides for the rest of the year as a result. But he said Apple is more insulated, making it the firm’s top pick among overweight stocks.

“While we do not believe Apple is completely immune from the weakening consumer hardware demand environment, we see Apple as better insulated, and our quarter-end checks show that demand has held up better than expected in recent months,” Woodring said in a note to clients.

Apple is helped by its sticky user base that is loyal to the brand when possible, he said. It will also feel tailwinds from new products, market share gains, more monetization of services and investments in areas including augmented reality, online payments and health.

Woodring pointed to Morgan Stanley data that shows consumer hardware will feel pain as consumers shift spending from goods to services coming out of the pandemic, if not clamping down all together amid inflationary challenges. More than a quarter, or 26%, of respondents surveyed expect to spend less on electronics over the next six months — a jump from just 6% in early 2021, when consumer spending was bolstered by government stimulus.

That translates to earnings per share for companies in the space being down around 15% to 20% for the September quarter, he said. Woodring has reduced 2023 estimates around 5% to 10% and price targets around 15% on average, with an average downside of about 35%.

While he said no company is recession-proof, Woodring said Apple has posted uniquely strong demand that makes him confident the tech giant will be insulated for an economy downturn in ways that others are not. A sharp turn from the standard, the price target of $177 presents an upside of just under 28% compared to last close. It is down about 22.1% this year, which is outperforming the tech-heavy Nasdaq composite’s 34%.

“While Apple is exposed to a potential slowing of consumer demand, we believe it is better positioned vs. other consumer hardware names with its sticky user base & history of investment through cycles,” Woodring said.  Beyond the relatively softer impacts Apple will feel from sliding consumer demand, Woodring said the stock’s upside could be mitigated by component shortages, further lockdowns in China or more regulation in the app store. Woodring listed CDW Corp., known for its IT offerings, as another high-conviction overweight stock. Cricut and Logitech were among stocks listed as underweight.