Investors have historically underestimated Apple’s gross margins – BofA

“Investors have historically underestimated Apple’s gross margins and it appears that it is happening again,” BofA Securities analyst Wamsi Mohan writes in a note to clients.
Emily Bary for MarketWatch:
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Investors have found plenty of reasons to sour on Apple Inc. shares this year, sending them down more than 12% over the course of 2024 to date even as the S&P 500 SPX has advanced 8%.
But what if Wall Street is missing the point on Apple — again? That’s an issue BofA Securities analyst Wamsi Mohan explored in his latest note to clients as he looked at how investors have gotten things wrong on Apple shares in the past.
The company’s long-term margin potential remains compelling, according to Mohan, and if you go back a few years, you can see Wall Street’s tendency to lowball its projections there. For example, in 2018, the consensus view forecast was for 39% gross margins for fiscal 2023, but Apple recorded 44% for that period.
Now, looking forward, he thinks the company could drive about 180 basis points of gross-margin upside on the product side of the business, as well as 150 basis points of upside in services over the coming years.
“Consumers are opting for more higher-end devices (higher price), but we also expect Apple to raise pricing of individual hardware devices over time, which can be accretive to gross margin,” Mohan wrote.

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MacDailyNews Note: Mohan maintains a “Buy” rating and $225 price tragte on Apple shares.
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