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Morgan Stanley boosts Apple target to $150

post #1 of 24
Thread Starter 
Citing its thesis that Apple's operating leverage remains underappreciated by investors, Morgan Stanley on Wednesday initiated sharp increases to both its earnings forecast and price target for the Cupertino-based consumer electronics maker.

"While a successful iPhone launch is now better incorporated into the share price (though we still believe Street expectations understate potential iPhone penetration), operating leverage remains an underappreciated source of earnings-per-share upside longer-term," lead analyst Katy Huberty wrote in a detailed report to clients.

Huberty said Apple's operating margin should continue to benefit from two primary factors, mainly that the company's operating expenses grow at only half the rate of revenues, and that products sold through its fixed cost brick-and-mortar retail stores earn as much as 14 points in incremental profit.

Should Apple's operating expenses to revenue ratio hold tight going forward, every $1 billion of incremental revenue in 2008 should drives 30 basis points of operating margin, according the analyst. Similarly, she said, a 5 point increase in the mix of revenues through the company's retail stores will add another 50 basis points.

Given that iPhone will only sell through Apple and Cingular/AT&T stores (roughly 2,300 points of distribution compared to 8,000 for Mac and 20,000+ for iPod), Huberty believes it could drive a higher percent of revenues through direct distribution.

At the same time, the analyst said conviction in her iPhone forecast of 8 million units in 2007 and 12 million in 2008 is increasing. "Our checks point to a strong build rate into the back half of the year and potential for new product ahead of the 2007 holiday season," she wrote. "We also believe iPhone operating margins are accretive, not dilutive."

The Morgan Stanley analyst also believes Mac market share is due to accelerate as a result of the platform's growing customer base, integrated virtualization technology in Mac OS X 10.5 Leopard, and new products.

"The biggest opportunity, in our opinion, is to leverage Apples differentiated compute (Mac) + communication (iPhone) platform into a truly mobile compute and communication device," she told clients. "We believe this is a market that will emerge with or without Apple and will ultimately replace a large portion of laptop computers."

Should Apple lead innovation in the new mobile segment, Huberty believes the company could achieve 10-15+ percent global market share in the longer-term. In taking a first stab at modeling the market opportunity, she assumed a 5 percent penetration rate within the firm's customer base, which in a bull case scenario would drive shipments of 3 million Mac ultraportable devices in 2008 (should the product launch in January).

Huberty maintained an Overweight rating on Apple stock, but raised her price target to $150 per share from $110. The analyst also increased her 2008 operating margin to 19.8 percent from 16.7 percent, and her 2008 per-share earnings estimate to $5.00 from $4.29.

"The perpetual mistake investors make is to compare Apple to other PC companies with operating margins in the single digits," she told clients. "While Apple earned PC-like operating margins historically (pre-2004), we believe the company is successfully evolving into a software-focused consumer electronics company."
post #2 of 24
oh NO, then Mac Mini will be priced at $999, i do not like to see Apple going back to Niche market again, it is already trading at the highest level.

over priced stock, over priced products!.

I want Apple to succeed, but its products should be affordable NOT high rocketed price.

Let us wait and see the success of iPhone before even talking about going to $140, just 13 days and an hour to Go!

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Nov '09 | iMac 21.5" C2D 3.06 Ghz | Intel 330 240GB SSD | ATI

Sep '12| Toshiba 14" 1366 x 768! | i5 3rd Gen 6GB| Intel x25-m 120GB SSD | Win 7|  Viewsonic VX2255wmb 22" LCD
iPhone 4S| iPad 2 wifi

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post #3 of 24
Its to bad Morgan Stanley didn't predict this $150.00 target price a few months ago when it cost $80.00. (As of today) it looks like AAPL may be the next GOOG...
post #4 of 24
Quote:
Originally Posted by MauiMac View Post

Its to bad Morgan Stanley didn't predict this $150.00 target price a few months ago when it cost $80.00. (As of today) it looks like AAPL may be the next GOOG...

I bought 100 shares 3.5 years ago at $54 before the last split. My reasoning at the time was to invest in Apple in equal amounts as to what it cost for my new Mac, a iBook G4. I wished I kept following my own intuition, as I have since bought a iMac 20" iMac 24"and 2 new ipods and the apple stereo 4 ipod and didn't put the same money into shares. Still, if I sold the shares now, it would still cover all of those other Apple" investments.
Will they go to $150....nope. They'll bring on another split before then. JMO
post #5 of 24
I bought 150 shares.

Two splits ago.

Best decision I ever made as an undergrad.
My brain is hung like a HORSE!
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My brain is hung like a HORSE!
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post #6 of 24
Quote:
Originally Posted by petermac View Post

Will they go to $150....nope. They'll bring on another split before then. JMO

It would probably be split-adjusted then. A 2:1 split stock that hits $75 would still meet the target.

They said at the last shareholder meeting that they weren't going to split for a while noting that a lot of companies are doing well with stocks that would have split long ago with now-obsolete attitudes regarding stock splits.
post #7 of 24
Quote:
Originally Posted by AppleInsider View Post

The Morgan Stanley analyst also believes Mac market share is due to accelerate as a result of the platform's growing customer base, integrated virtualization technology in Mac OS X 10.5 Leopard, and new products.

...

Should Apple lead innovation in the new mobile segment, Huberty believes the company could achieve 10-15+ percent global market share in the longer-term. In taking a first stab at modeling the market opportunity, she assumed a 5 percent penetration rate within the firm's customer base, which in a bull case scenario would drive shipments of 3 million Mac ultraportable devices in 2008 (should the product launch in January).

Integrated virtualization in Leopard, and an ultraportable in 2008? I'd say that's a bit of speculation, despite everyone's expectations.
post #8 of 24
Quote:
Originally Posted by JeffDM View Post

It would probably be split-adjusted then. A 2:1 split stock that hits $75 would still meet the target.

They said at the last shareholder meeting that they weren't going to split for a while noting that a lot of companies are doing well with stocks that would have split long ago with now-obsolete attitudes regarding stock splits.

I must admit, as a unsophisticated investor, I never understood the reasons for a split. It fools nobody, does it?
post #9 of 24
Not mathematically, but it has a strong psychological effect, and allows smaller investors to buy in. When one share of Berkshire-Hathaway is over $100k, it's out of the range of most individuals. If it were to split 1000:1, then $100 shares would be doable for most investors.
My brain is hung like a HORSE!
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My brain is hung like a HORSE!
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post #10 of 24
Quote:
Originally Posted by MauiMac View Post

Its to bad Morgan Stanley didn't predict this $150.00 target price a few months ago when it cost $80.00. (As of today) it looks like AAPL may be the next GOOG...

The next GOOG? Checkout the price of AAPL from the day GOOG went public.
How much has AAPL gone up? And how much has GOOG?

http://finance.google.com/finance?q=GOOG+AAPL
post #11 of 24
Quote:
Originally Posted by Kickaha View Post

Not mathematically, but it has a strong psychological effect, and allows smaller investors to buy in. When one share of Berkshire-Hathaway is over $100k, it's out of the range of most individuals. If it were to split 1000:1, then $100 shares would be doable for most investors.

Of course, B-H doesn't want those investors, which is why the stock doesn't split.
post #12 of 24
Quote:
Originally Posted by petermac View Post

I must admit, as a unsophisticated investor, I never understood the reasons for a split. It fools nobody, does it?

Hmmmm... you don't sound that unsophisticated to me!
post #13 of 24
Quote:
Originally Posted by petermac View Post

I must admit, as a unsophisticated investor, I never understood the reasons for a split. It fools nobody, does it?

A split can also help to stablize a stock, in that you don't have a $10 fluctuation if something is split 10:1 then it would be a $1 fluctuation. Also, if a stock goes up a penny after a split, that would be better than the fraction of a penny before the split, forcing people to pay a bit more.

Never affect people like me, but traders who move tens of thousands of shares each day notice.
post #14 of 24
Quote:
Originally Posted by jamezog View Post

Integrated virtualization ...? I'd say that's a bit of speculation, despite everyone's expectations.

Al Sharpton? Is that you?

I still think Apple has a few tricks up its sleeve for Apple TV and will eventually make a big push to compete with cable and satellite. The recurring revenue would give Apple a big incentive to subsidize Apple TV and grow the market through content.

If Apple TV were available for $100 and the content rates and availability were comparable to cable, I would probably switch. I would have (presumably) much more HD content from Apple than Comcast offers and every bit of it on demand.

I think this is the reason Apple lists Apple TV as one of its four major product lines.
post #15 of 24
Quote:
Originally Posted by Kickaha View Post

Not mathematically, but it has a strong psychological effect, and allows smaller investors to buy in. When one share of Berkshire-Hathaway is over $100k, it's out of the range of most individuals. If it were to split 1000:1, then $100 shares would be doable for most investors.

The only way I can think of is if there is a minimal fraction of a share that you must buy. Otherwise, $10 of a $1000 stock would buy you just as much of the company as would $10 of a stock that is $100 after a 10:1 split.
post #16 of 24
Quote:
Originally Posted by JimDreamworx View Post

A split can also help to stablize a stock, in that you don't have a $10 fluctuation if something is split 10:1 then it would be a $1 fluctuation. Also, if a stock goes up a penny after a split, that would be better than the fraction of a penny before the split, forcing people to pay a bit more.

Never affect people like me, but traders who move tens of thousands of shares each day notice.

That doesn't change anything. A percentage change remains the same no matter what price the stock is.

Only two reasons for a split, and both are related.

The first is to make it seemingly more affordable to the small investor who thinks that 100 shares at $50 is better value than 50 shares at $100.

The purpose of that is to:

Get the stock into more hands. Many small investors are loth to sell their stocks, even if they do go down. this can help to stabilize the price somewhat, but, more importantly, can get the stock included on the "most popular stocks" listings in the papers, and investment websites. This gets the stock noticed more easily, and when the company is doing well, it's considered to be an advantage.
post #17 of 24
Quote:
Originally Posted by petermac View Post

I must admit, as a unsophisticated investor, I never understood the reasons for a split. It fools nobody, does it?

You are right. It does not fool anyone who matters. One share at $100 is exactly the same as 2 shares at $50.

Quote:
Originally Posted by Kickaha View Post

Not mathematically, but it has a strong psychological effect, and allows smaller investors to buy in. When one share of Berkshire-Hathaway is over $100k, it's out of the range of most individuals. If it were to split 1000:1, then $100 shares would be doable for most investors.

You are also right. Reducing the share price via a split does attract small investors. However, the market is mostly controlled by Hedge funds and large institutional investors like Morgan Stanley, Vanguard et al. The effect of small investors is negligible. 71% of AAPL stock is owned by institutions. The other 29% is owned by Apple employees and the general investing public, a small fraction of which is the "small investor". Recent quotes from SJ seem to indicate that he favors a GOOG strategy, i.e. keep the share price high. For most of us who own the stock, it really doesn't matter. If I was going to buy another $1000 of AAPL, whether I bought 1 or 10 shares is irrelevant. What I want, what we all want is continued high growth and high return on investment. In AAPL's case the ROI is 25% and moving steadily upward. Here's a good link to look at all of AAPL's pre-iPhone financial numbers:

http://stocks.us.reuters.com/stocks/...&symbol=AAPL.O
post #18 of 24
Quote:
Originally Posted by lfe2211 View Post

You are right. It does not fool anyone who matters. One share at $100 is exactly the same as 2 shares at $50.



You are also right. Reducing the share price via a split does attract small investors. However, the market is mostly controlled by Hedge funds and large institutional investors like Morgan Stanley, Vanguard et al. The effect of small investors is negligible. 71% of AAPL stock is owned by institutions. The other 29% is owned by Apple employees and the general investing public, a small fraction of which is the "small investor". Recent quotes from SJ seem to indicate that he favors a GOOG strategy, i.e. keep the share price high. For most of us who own the stock, it really doesn't matter. If I was going to buy another $1000 of AAPL, whether I bought 1 or 10 shares is irrelevant. What I want, what we all want is continued high growth and high return on investment. In AAPL's case the ROI is 25% and moving steadily upward. Here's a good link to look at all of AAPL's pre-iPhone financial numbers:

http://stocks.us.reuters.com/stocks/...&symbol=AAPL.O

I would agree with that.
post #19 of 24
Apple makes the most profit on items it sells in the it's retail stores. The iPhone will be drawing in large crowds, if not to buy it, at least to view it. There should be a lot of residual sales from people who otherwise wouldn't have come into the Apple store at that time. Think extra iPods sold, extra notebooks, extra NEW iMacs.

Just for the sake of Massive speculation: What if Steve Jobs were to whip out a Multitouch touchscreen ultra portable device. Think iPhone with really large touchscreen. That would certainly take the wind out of Palm's sale on their new device. And certainly would upstage a digital coffee table. What were they thinking?
post #20 of 24
Quote:
Originally Posted by lfe2211 View Post

You are right. It does not fool anyone who matters. One share at $100 is exactly the same as 2 shares at $50.

I disagree. If the stock goes up $1 and you have 1 share you get $1. If you have 2 shares you make $2. I'll take the $2. A split is good for any current investor. I have 1000 shares. I would love to have another 1000 shares from a split. Then every dollar it goes up I make $2000 instead of $1000.
post #21 of 24
Quote:
Originally Posted by psykohed View Post

I disagree. If the stock goes up $1 and you have 1 share you get $1. If you have 2 shares you make $2. I'll take the $2. A split is good for any current investor. I have 1000 shares. I would love to have another 1000 shares from a split. Then every dollar it goes up I make $2000 instead of $1000.

And it is exactly twice as hard to get the stock to move up $1 - the same market action that causes a $10 stock to go up $1 would cause a $5 stock with twice as many shares to go up 50 cents.

Splits make no difference. If you really believe what you posted, why don't you only own things like Berkshire Hathaway, which goes up thousands at a time? And why don't we see $4 stocks going up $3 and back down $3 like Apple stock does?
post #22 of 24
Quote:
Originally Posted by ajhill View Post

Apple makes the most profit on items it sells in the it's retail stores. The iPhone will be drawing in large crowds, if not to buy it, at least to view it. There should be a lot of residual sales from people who otherwise wouldn't have come into the Apple store at that time. Think extra iPods sold, extra notebooks, extra NEW iMacs.

Just for the sake of Massive speculation: What if Steve Jobs were to whip out a Multitouch touchscreen ultra portable device. Think iPhone with really large touchscreen. That would certainly take the wind out of Palm's sale on their new device. And certainly would upstage a digital coffee table. What were they thinking?

I think that Palm took the wind out of Palm's sails, with this new device.

They apparently don't need Apple to do for them.
post #23 of 24
Quote:
Originally Posted by psykohed View Post

I disagree. If the stock goes up $1 and you have 1 share you get $1. If you have 2 shares you make $2. I'll take the $2. A split is good for any current investor. I have 1000 shares. I would love to have another 1000 shares from a split. Then every dollar it goes up I make $2000 instead of $1000.

How many times is someone going to come on this thread and say that very same, incorrect, thing?

If you would only read back, you would see that this idea has already been disposed of.

But, one more time.

If a stock is at, say, $100, and splits, so that you now have two shares for each one before, and each is now worth $50, you have the same valuation as before.

If that stock now goes up $1 at its new lower by half $50 per share price, then it would have gone up $2 at it's earlier pre-split $100 per share price.

You end up with the same amount of money.

Stocks don't go up randomly. They go up based on earnings per share, speculation on where the company will be a week from now, or a month, or a quarter, or a year, etc.

The more shares there are out there, the less they tend to rise on any given trading session.

If a company is going gangbusters, as Apple is now, the stock will rise quickly, as Apple's is now.

But, if Apple split two for one, each of the new shares would move up (or down) by about half the amount it did before.

Believe it or not!
post #24 of 24
Meanwhile, Apple closed today at $118.77. It was up $4.42, and 3.87%.

Take them Apples!
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