Morgan Stanley ups Apple target, Mac sales estimates
In a bullish research report released Friday, Morgan Stanley raised its price target on shares of Apple Inc. to $180 from $150, but said that the stock could potentially surge as high as $225 given the company's operating leverage and the upcoming launch of an ultramobile Mac.
The investment bank -- one New York City's largest and most reputable -- also raised its calendar year 2008 per-share earnings forecast from $5.00 to $6.00, adding that in its "bull case scenario" $7.00 in per-share earnings and a $225 stock price is "increasingly likely" given the Cupertino-based company's operating leverage, faster than expected Mac market share growth, and the best iPod lineup since 2005.
"We continue to believe Street estimates understate the true operating margin potential of Apple?s business. In the near-term, component costs aren?t nearly the headwind many feared," analyst Katy Huberty wrote. "Longer-term, Leopard OS launch, increased store revenue, AT&T payments and unit scale/accessories sales on a much larger installed base are all likely to drive margins higher."
Huberty increased her 2008 Mac unit forecast by 900,000 units to 9.3 million units and her Mac revenue share forecast by half a point to 5 percent in order to account for recent Mac outperformance as well as the continued strength she expects in Mac demand. The analyst also believes the iPhone will drive more ancillary revenue than she previously modeled.
"We are now assuming an incremental $150/iPhone payment from AT&T (in addition to $5/month service revenue sharing) and $75 of accessories revenue (vs. $30 in old model)," she wrote.
Furthermore, the analyst said, Mac unit upside and the launch of Mac OS X Leopard in late October should drive at least 80 basis points of gross margin upside to her previous model.
For Apple's recently ended September quarter, results of which are due October 22nd, Huberty said she is now expecting upside to both her $6.3 billion revenue and $0.82 per-share earnings forecast. While she had been modeling the company to sell 1.9 million Macs (20 percent growth) during the three month period, July and August Mac sellout data in the U.S. retail and distributor channels have recently suggested that Apple will best that estimate.
"Furthermore, this data shows that Apple was the only major PC vendor that did not experience a slowdown in unit growth during the month of August," Huberty added. "We believe this is a function of its higher income customer and product that stands out in what is otherwise a commoditized market."
Meanwhile, the analyst's checks on iPod build plans through the quarter pointed to units in the 14 to 17 million range. And while all of those player are unlikely to have shipped into retail stores by the quarter's end on September 29th, she does see "upward pressure" on her 11 million iPod estimate. iPhone units, she expects, will come in close to her 1.2 million forecast.
"We view Apple?s powerful brand, distribution and customer experience engine as key to driving incremental revenue growth," Huberty wrote. "Operating leverage is central to our thesis, as operating expenses scale over a larger revenue base and Apple?s retail stores drive improved margins."
More (1, 2) on the ultra-mobile Mac that Katy talks about in her case scenarios.
The investment bank -- one New York City's largest and most reputable -- also raised its calendar year 2008 per-share earnings forecast from $5.00 to $6.00, adding that in its "bull case scenario" $7.00 in per-share earnings and a $225 stock price is "increasingly likely" given the Cupertino-based company's operating leverage, faster than expected Mac market share growth, and the best iPod lineup since 2005.
"We continue to believe Street estimates understate the true operating margin potential of Apple?s business. In the near-term, component costs aren?t nearly the headwind many feared," analyst Katy Huberty wrote. "Longer-term, Leopard OS launch, increased store revenue, AT&T payments and unit scale/accessories sales on a much larger installed base are all likely to drive margins higher."
Huberty increased her 2008 Mac unit forecast by 900,000 units to 9.3 million units and her Mac revenue share forecast by half a point to 5 percent in order to account for recent Mac outperformance as well as the continued strength she expects in Mac demand. The analyst also believes the iPhone will drive more ancillary revenue than she previously modeled.
"We are now assuming an incremental $150/iPhone payment from AT&T (in addition to $5/month service revenue sharing) and $75 of accessories revenue (vs. $30 in old model)," she wrote.
Furthermore, the analyst said, Mac unit upside and the launch of Mac OS X Leopard in late October should drive at least 80 basis points of gross margin upside to her previous model.
For Apple's recently ended September quarter, results of which are due October 22nd, Huberty said she is now expecting upside to both her $6.3 billion revenue and $0.82 per-share earnings forecast. While she had been modeling the company to sell 1.9 million Macs (20 percent growth) during the three month period, July and August Mac sellout data in the U.S. retail and distributor channels have recently suggested that Apple will best that estimate.
"Furthermore, this data shows that Apple was the only major PC vendor that did not experience a slowdown in unit growth during the month of August," Huberty added. "We believe this is a function of its higher income customer and product that stands out in what is otherwise a commoditized market."
Meanwhile, the analyst's checks on iPod build plans through the quarter pointed to units in the 14 to 17 million range. And while all of those player are unlikely to have shipped into retail stores by the quarter's end on September 29th, she does see "upward pressure" on her 11 million iPod estimate. iPhone units, she expects, will come in close to her 1.2 million forecast.
"We view Apple?s powerful brand, distribution and customer experience engine as key to driving incremental revenue growth," Huberty wrote. "Operating leverage is central to our thesis, as operating expenses scale over a larger revenue base and Apple?s retail stores drive improved margins."
More (1, 2) on the ultra-mobile Mac that Katy talks about in her case scenarios.
Comments
But aapl can make 200 on increasing mac sales alone.
But where in the quotes does the analyst cite the possibility of a so-called "ultra-portable"? Where?
I don't see mention of it here:
http://aapl.bloggingstocks.com/
Nor here:
http://blogs.barrons.com/techtraderd...target-to-110/
Don't confuse wishful thinking for actual reporting, guys.
Actually a solid analysis. Someone actually did their homework.
But where in the quotes does the analyst cite the possibility of a so-called "ultra-portable"? Where?
I don't see mention of it here:
http://aapl.bloggingstocks.com/
Nor here:
http://blogs.barrons.com/techtraderd...target-to-110/
Don't confuse wishful thinking for actual reporting, guys.
MS always does a wonderful job, I must say. And lets not forget they are the only ones to really nail the iPhone specs ahead of release =P
Look at the graphic... it was only mentioned a few places... no details.
Best,
K
MS always does a wonderful job, I must say. And lets not forget they are the only ones to really nail the iPhone specs ahead of release =P
Look at the graphic... it was only mentioned a few places... no details.
Best,
K
OK, there are 2 brief mentions of an "ultramobile". More likely are Leopard release and expected updates...speculation of a totally new piece of hardware has no business being in the analysis and is highly unlikely (in other words, the best case scenario should not even factor this in!).
Split soon? Give me your McAnalysis, McHuman.
No reason to split.
No reason to split.
Reasons? More affordable to the average AAPL investor, continued perception of AAPL being on a roll (although it adds no value, it can attract investors, admit it!... when's the last time you picked up a block of Google stock? Google is out of the question for most investors that are not institutions).
Using today's multiple of 47 with the $7.00 EPS scenario, AAPL would be at $329.
I get very nervous when Apple sits in the mid 40's for more than the time to the next quarter end.
I feel much better when it's sitting in the mid 30's.
Reasons? More affordable to the average AAPL investor, continued perception of AAPL being on a roll (although it adds no value, it can attract investors, admit it!... when's the last time you picked up a block of Google stock? Google is out of the question for most investors that are not institutions).
Against the idea of a split is that it's much harder to beat the whisper number by a few cents. As the whisper numbers seem to be what investors are looking at these days, rather than more realistic figures, companies feel as though (often correctly) they have to beat them for the stock to continue to rise.
The more shares, the lower earnings are per share, and the more difficult to fiddle those last few cents.
Who cares who last bought Google shares. Not buying a share because of the price is simply poor investment policy. By the way Googles price is increasing, someone is buying them.
Who cares who last bought Google shares. Not buying a share because of the price is simply poor investment policy. By the way Googles price is increasing, someone is buying them.
Agreed. There are no reasons for splits. Anyone who can't afford to pay $150 for some shares but can afford $75 is not somebody we want supporting our stock. If you have $10,000, buying $500 shares or $5 shares is the same thing.
Second, its the current trend for the big tech boys to be expensive - google, rimm, bidu, aapl. Also makes for less volatile stock and as such, impresses institutions to stay in. Apple is going for a more stable, blue-chip management for their shareholders recently and avoiding the up and down cheap mom & pops that jump in on a split.
Agreed. There are no reasons for splits. Anyone who can't afford to pay $150 for some shares but can afford $75 is not somebody we want supporting our stock. If you have $10,000, buying $500 shares or $5 shares is the same thing.
Second, its the current trend for the big tech boys to be expensive - google, rimm, bidu, aapl. Also makes for less volatile stock and as such, impresses institutions to stay in. Apple is going for a more stable, blue-chip management for their shareholders recently and avoiding the up and down cheap mom & pops that jump in on a split.
Yes, exactly.
I'll give a little scenario for those who don't understand what happens when a split is announced for shares that are rising.
The split is announced. Experienced investors immediately buy in. The stock begins its run-up to the day of the split.
The stock splits. The inexperienced investors buy in, and the stock prices rises a bit more for a short while.
The experienced investors sell out, taking their profits.
The stock price falls, and the inexperienced investors are standing around going "duh".
The experienced investors buy back in.
After a bit of time, the stock which was rising BEFORE the announcement of the split continues its rise.
The inexperienced investors wipe the sweat off their foreheads (if they didn't sell into the drop
The same thing happens a few years later if the company is still doing very well (with often the same groups of investors—some people never learn).
Reasons? More affordable to the average AAPL investor, continued perception of AAPL being on a roll (although it adds no value, it can attract investors, admit it!... when's the last time you picked up a block of Google stock? Google is out of the question for most investors that are not institutions).
Major corporations are finding fewer reasons to split. Google's stock and Warren Buffet's company are two examples that are often cited.
The only thing that a split does is affect its perception of cost. If it weren't for stupid perceptions like that, a stock split really does nothing. I really don't think any major corporation wants the instability of having to deal with people that dumb owning their stock. I think they are exactly the kind of people that buy and sell based on faulty information.
It is possible to buy fractions of a share, so I don't think affordability is a valid reason.
Major corporations are finding fewer reasons to split. Google's stock and Warren Buffet's company are two examples that are often cited.
The only thing that a split does is affect its perception of cost. If it weren't for stupid perceptions like that, a stock split really does nothing. I really don't think any major corporation wants the instability of having to deal with people that dumb owning their stock. I think they are exactly the kind of people that buy and sell based on faulty information.
It is possible to buy fractions of a share, so I don't think afford ability is a valid reason.
Good points. Personally I'd like to see apple issue about 130.4 million new shares, making an even 1 billion outstanding, @ 145 a piece to raise some capital(18.9billion). That along with their 10.1 billion cash on hand should give them a good war chest(29 billion total) for future acquisitions.
Major corporations are finding fewer reasons to split. Google's stock and Warren Buffet's company are two examples that are often cited.
The only thing that a split does is affect its perception of cost. If it weren't for stupid perceptions like that, a stock split really does nothing. I really don't think any major corporation wants the instability of having to deal with people that dumb owning their stock. I think they are exactly the kind of people that buy and sell based on faulty information.
It is possible to buy fractions of a share, so I don't think affordability is a valid reason.
I agree with many of these observations (mainly regarding the "perception" issue... and Apple being mainly a technology & marketing firm, perception is paramount), but as you are all aware, AAPL has split 3 times previously, once within the past 2 years.
Additionally, as this article raises the point of Apple attempting to meet the challenge of a wider audience for their products, if customers are unhappy, profits suffer and investors become unhappy... So, thinking that dumb people should not have a stake in AAPL is just foolishness. Dumb people are also AAPL customers... see iPhone "bricking" for proof of that.
Good points. Personally I'd like to see apple issue about 130.4 million new shares, making an even 1 billion outstanding, @ 145 a piece to raise some capital(18.9billion). That along with their 10.1 billion cash on hand should give them a good war chest(29 billion total) for future acquisitions.
Issuing new stock dilutes the value per share. There's less logic in this than in splitting the stock!
Issuing new stock dilutes the value per share. There's less logic in this than in splitting the stock!
That, and Apple already has a lot of cash. They can seemingly acquire anything and anyone they feel they need to.
I agree with many of these observations (mainly regarding the "perception" issue... and Apple being mainly a technology & marketing firm, perception is paramount), but as you are all aware, AAPL has split 3 times previously, once within the past 2 years.
I totally missed that split.
Additionally, as this article raises the point of Apple attempting to meet the challenge of a wider audience for their products, if customers are unhappy, profits suffer and investors become unhappy... So, thinking that dumb people should not have a stake in AAPL is just foolishness. Dumb people are also AAPL customers... see iPhone "bricking" for proof of that.
The problem is that those investors are likely the ones that increase the volatility. Remember the posters grousing this summer about huge drops after a series of unsubstantiated rumors?
Customers don't have to be share holders, and share holders don't have to be customers. There are some good up sides if Apple's loyal customers are loyal stock holders too, but the unhappy ones probably aren't going to be either for very long.