Morgan Stanley hikes AAPL to $247, says investors are unnecessarily negative

Posted:
in AAPL Investors
Apple is an attractive company to invest in ahead of its upcoming earnings report, Morgan Stanley suggests, with low Wall Street estimates for September and negative investor sentiment for the iPhone maker's current state potentially making decent results for the next quarter seem better.




In the latest note to investors seen by AppleInsider, Morgan Stanley is being positive about Apple's shares, in part due to low current expectations for the company's performance in the September quarter. Analysts have four main reasons for their "positive bias into June quarter earnings," which has also prompted a raise in price target from $231 to $247 for the "Overweight"-rated stock.

The first main reason is "unusually negative" investor sentiment, with call volume for the quarter deemed to be low despite a 20% share bounce back from May's low.

The persistent undervaluing of Apple's Services has been a big red flag to Morgan Stanley in its reports. For example, following April's announcements of new services, the Street was seen to be skeptical on a lack of apparent detail from the plans, prompting them to leave revenue forecasts unchanged despite the increased number of Services items by the end of 2019.

Morgan Stanley believes the consensus estimates for the September quarter imply a low bar, as supply chain reports suggest the builds for September are higher than the firm's own forecast. Add in the consensus modeling of Apple's services growth deceleration on a background of App Store issues in China being eased, such as authorities granting gaming licenses following a one-year ban, and that makes the Street's dour outlook seem to be harsher than it could be.

June quarter iPhone data also held up in the company's own checks, such as with improvements in China from the March quarter and relatively consistent checks for domestic US sales. The firm's forecast is 37 million iPhone shipments in the June quarter, down 10% year-on-year, translating into $26.2 billion in iPhone revenue, down 11% from the same quarter last year.

Lastly, there is the firm's expectation the June quarter Services revenue will accelerate by 3 points for the first time since the March 2018 quarter. In theory, this is a "key catalyst" in regaining investor confidence in a Services narrative.

Morgan Stanley's model for Services puts revenue at $11.9 billion, up 16.7% year-on-year as reported. Combining the Chinese App Store restriction easing by the government, and the yet-to-launch Apple TV+, Apple Arcade, and Apple Card, these should improve the Services arm's finances even more towards the end of the year.

Previously, Morgan Stanley suggested the introduction of the new bundles could return Apple to a trillion-dollar valuation.

While Morgan Stanley has championed Services as a revenue generator for Apple, other firms are continuing to see iPhones as the main point of analysis for the shares. In one example, Rosenblatt Securities recently downgraded Apple to "sell" over the belief the iPhone sales will be disappointing for the second half of 2019, despite the potential promise of Services.

For the moment, Morgan Stanley's forecast for September revenue is $61.3 billion, down 3% year-on-year, with a gross margin of 37.7%. For the more immediate June quarter, the revenue forecast has been adjusted slightly up to $53.8 billion, up 1% year-on-year, with unchanged revenue and EPS.

Apple will announce its Q3 2019 earnings on July 30.

Comments

  • Reply 1 of 15
    MacProMacPro Posts: 18,359member
    ...  And that's just a start ...
    applesnoranges
  • Reply 2 of 15
    crowleycrowley Posts: 5,997member
    I must be getting cynical.  My first thought was that they're trying to pump up to stock before they sell off, and that a dip is likely coming.
  • Reply 3 of 15
    APPL 300 🍏
  • Reply 4 of 15
    LordeHawkLordeHawk Posts: 167member
    Quiet Morgan Stanley!

    I need to add more shares first!
  • Reply 5 of 15
    iOS_Guy80iOS_Guy80 Posts: 201member
    APPL 300 🍏
    Apple is running on all cylinders. The stars are alining up for 300.
  • Reply 6 of 15
    BombdoeBombdoe Posts: 12member
    So analyst is saying that analyst talk about expectations affected expectations in a bad way and in fact they should not let that previous analyst talk affect them and instead they should listen to the new analyst talk.
    muthuk_vanalingamcincytee
  • Reply 7 of 15
    nadrielnadriel Posts: 9member
    crowley said:
    I must be getting cynical.  My first thought was that they're trying to pump up to stock before they sell off, and that a dip is likely coming.
    And that is illegal manipulation that’ll give them long time hit on their respectability and trustworthiness. And fines at least. Similar with the case where Musk tweeted a *really* funny weed joke and got kicked out of the board.  
  • Reply 8 of 15
    Because investors gets their sentiment from the press, which gets it from reddit, which gets it from astroturfing. Welcome to 2012.
  • Reply 9 of 15
    I can't trust any of those crooked analysts.  Setting some impossible-to-reach price target doesn't prove anything.  If big investors ignore Apple stock then the stock is going to go down or not move.  What I do know is Apple was a trillion-dollar company and then quickly collapsed and ia now trailing both Microsoft and Amazon in overall value.  Both of those stocks are running rings around Apple when it comes to share price gains.  I bet Microsoft's share price doesn't collapse the way Apple's did.  Anyway, as long as Apple keeps trying to make revenue from those pricey iPhones which hardly any overseas consumer wants, the company isn't going to go anywhere.  Apple needs to rethink its revenue and profit strategy now that iPhone sales are in the toilet.  Apple needs to enter an unlimited growth business such as cloud computing and enjoy the same praise that both Microsoft and Amazon constantly get.  Apple has been struggling to hold $200 a share for the past few weeks while other tech companies have been flying in terms of share gains.
  • Reply 10 of 15
    maestro64maestro64 Posts: 4,643member
    The only people being negative are analysis and analysis are not investors, they are not allowed to benefit from their view point due to their ability to drive markets on an investments.

    Analysis are negative so their companies can get their friends Apple stock cheap and make money on the shorts side.

    I believe most investors are more positive about Apple than being negative.
  • Reply 11 of 15
    maestro64 said:
    The only people being negative are analysis and analysis are not investors, they are not allowed to benefit from their view point due to their ability to drive markets on an investments.

    Analysis are negative so their companies can get their friends Apple stock cheap and make money on the shorts side.

    I believe most investors are more positive about Apple than being negative.
    As a short term investor of Apple, I bank on their volatility. The stock prices for Apple fluctuate too much for a long term investment, so you are better off cashing out and rebuying back in.
  • Reply 12 of 15
    maestro64maestro64 Posts: 4,643member
    maestro64 said:
    The only people being negative are analysis and analysis are not investors, they are not allowed to benefit from their view point due to their ability to drive markets on an investments.

    Analysis are negative so their companies can get their friends Apple stock cheap and make money on the shorts side.

    I believe most investors are more positive about Apple than being negative.
    As a short term investor of Apple, I bank on their volatility. The stock prices for Apple fluctuate too much for a long term investment, so you are better off cashing out and rebuying back in.
    When Apple gyrate 20 or 30 points in a give quarter due to buy on rumor sell on fact I would agree the volatility is worth it, I did that all the time. We do not see those big changes everyone once in a while we see a big drop in apple only to have it come back. Right now the stock is only heading up and pumping out dividends. But this only may sense if you bought years ago and held.
  • Reply 13 of 15
    flydogflydog Posts: 328member
    Bombdoe said:
    So analyst is saying that analyst talk about expectations affected expectations in a bad way and in fact they should not let that previous analyst talk affect them and instead they should listen to the new analyst talk.
    So you read the article. Good for you.  Finally putting that GED to good use. 
  • Reply 14 of 15
    flydogflydog Posts: 328member

    maestro64 said:
    The only people being negative are analysis and analysis are not investors, they are not allowed to benefit from their view point due to their ability to drive markets on an investments.

    Analysis are negative so their companies can get their friends Apple stock cheap and make money on the shorts side.

    I believe most investors are more positive about Apple than being negative.
    As a short term investor of Apple, I bank on their volatility. The stock prices for Apple fluctuate too much for a long term investment, so you are better off cashing out and rebuying back in.
    What you posted makes zero sense.  A long-term investor could care less about short-term volatility.  
  • Reply 15 of 15
    flydogflydog Posts: 328member

    maestro64 said:
    The only people being negative are analysis and analysis are not investors, they are not allowed to benefit from their view point due to their ability to drive markets on an investments.

    Analysis are negative so their companies can get their friends Apple stock cheap and make money on the shorts side.

    I believe most investors are more positive about Apple than being negative.
    So your theory is basically that securities fraud is the main source of revenue for Morgan Stanley and other investment banks.  Kudos on your well reasoned analysis. 
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