Morgan Stanley raises Apple target to $160, citing strength as a 'platform company'

Posted:
in AAPL Investors edited March 2015
Morgan Stanley showed significant confidence in Apple on Monday, raising their price target to $160 and expressing a belief to investors that the company can continue to grow its business.




In her latest research note, analyst Katy Huberty raised her price target from a previous projection of $133. And she's also introduced a new "bull case" scenario, in which she could see shares of Apple reaching $190 if the company outperforms her own expectations.

Huberty's positive outlook on Apple stems from her belief that the company's users are the most loyal of any platform. In addition, Apple users are willing to pay a premium for the superior experience that the company's platform offers.

In her view, Apple is chiefly a "platform company," offering the best devices at what it considers to be a fair price. She noted that 89 percent of iPhone users plan to buy another iPhone, which means new converts to the iOS platform are likely to stick and buy new hardware in the future.
Katy Huberty believes Apple will expand to new markets in the coming years, further growing its business and driving its stock price higher.
In addition, this "halo effect" will encourage users to buy other Apple devices, products and services, such as Macs, apps and media.

Huberty believes that with its current product lineup, Apple addresses about 33 percent of the needs in a user's day. But if the company continues to expand its presence in cars, TVs and health, there are "significant opportunities" for Apple to expand its business, she said.

While rumored products like a car or full-fledged television set are "further out," in Huberty's view, she believes that near-term products like the Apple Watch will continue to expand Apple's total addressable market. She's also bullish on the prospects of Apple Pay and streaming music.

Huberty's $160 price target assumes a 15-times price to earnings of $8.86 in calendar year 2015. That would be in line with large-cap technology platforms including Microsoft, Google, Facebook and Oracle.

As for her "bull case" price of $190, that would be a 19x multiplier, which she said is in line with large-cap platform companies across industries. She also noted that Apple's margins, earnings growth and yield are on par to better than platform peers.
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Comments

  • Reply 1 of 21
    VA-VOOOOOOOM ! ! !
  • Reply 2 of 21
    herbapouherbapou Posts: 2,222member

    Will be nice to finally see a move on the TV or Apple TV side, all of which being a part of the broader Apple smart home initiative.

  • Reply 3 of 21
    About time an analyst understood Apple. Well done Katy.
  • Reply 4 of 21
    Imagine Apple's upside if Judge Koh didn't allow Sungsam's theft of Apple's IP and trade dress.
  • Reply 5 of 21
    Quote:

    Originally Posted by AppleInsider View Post





    Huberty's $160 price target assumes a 15-times price to earnings of $8.86 in calendar year 2015. That would be in line with large-cap technology platforms including Microsoft, Google, Facebook and Oracle.



    As for her "bull case" price of $190, that would be a 19x multiplier, which she said is in line with large-cap platform companies across industries. She also noted that Apple's margins, earnings growth and yield are on par to better than platform peers.

     

    The average P/E of Microsoft, Google, Facebook and Oracle is 34.64, which is more than double the 15 that she is assuming for Apple. I'm not saying that 15 is unrealistic given the market's history of undervaluing Apple, but it's hardly "in line" with those other firms--in fact, all of them are above 15, and Facebook's is 74.69.

  • Reply 6 of 21
    retrogusto wrote: »
    The average P/E of Microsoft, Google, Facebook and Oracle is 34.64, which is more than double the 15 that she is assuming for Apple. I'm not saying that 15 is unrealistic given the market's history of undervaluing Apple, but it's hardly "in line" with those other firms--in fact, all of them are above 15, and Facebook's is 74.69.

    Yes, but all of those companies innovate and Apple doesn't. Also, Steve Jobs.
  • Reply 7 of 21
    gwmacgwmac Posts: 1,797member

    Apple, you gave me some scary days pre-split when the stock tanked. But boy have you skyrocketed since then. I took a risky move and added a lot  to my position on margin when it tanked. The interest rate wasn't all that bad since my dividends basically paid for the margin rate. I just sold a few of those off to pay off my margin account to zero and managed to add 850 shares to my position for free. High risk but high reward

  • Reply 8 of 21
    radarthekatradarthekat Posts: 3,129moderator

    $140  is my own price target for October of this year, based upon where I think fiscal 2015 earnings will come in, against a reasonable earnings multiple and a few less shares outstanding.  Push that out three months to capture the sure to be huge holiday quarter and $160 doesn't seem out of reach.

     

    My own downside scenario for October against fiscal 2015 earnings is not so bad as her $103.  Mine goes like this.

     

    Q1, already in the bank, was $18 billion, give or take a couple hundred million.

    Q2, not a stretch to imagine $12 billion.

    Q3, not a stretch to imagine $9 billion.

    Q4, after the slow summer months, gets its usual boost from initial sales of the 6S/6S+, not a stretch to imagine $7 billion.

     

    So that's a conservative total of $46 billion.  

     

    Give that a 16 multiple, less than the current 17.5, and you get a market cap of $736 billion.

     

    After some additional buy backs this quarter and the next two, the total outstanding shares might be 5.7 billion.

     

    That gets you a price per share of... $129.  So there's not a lot of downside going forward, but plenty of upside if things go like I imagine they will.

  • Reply 9 of 21
    I feel that $160 is a little too optimistic.

    $140 by year's end is more realistic.
  • Reply 10 of 21
    radarthekatradarthekat Posts: 3,129moderator
    Quote:
    Originally Posted by gwmac View Post

     

    Apple, you gave me some scary days pre-split when the stock tanked. But boy have you skyrocket since then. I took a risky move and added a lot on margin when it tanked. The interest rate wasn't all that bad since my dividends basically paid for the margin rate. I just sold a few of those off to pay off my margin account to zero and managed to add 850 shares to my position for free. High risk but high reward




    Ditto, got whacked for about $550k to the downside during the Sept 2012 - June 2013 crash in Apple's share price and the wiping out of a lot of options I was holding.  Silly me...  But I held some shares, traded in and out others, and added more while employing call options and call spreads to juice my returns.  Now recovered that entire paper loss and a couple hundred $k more.  

     

    My AAPL orchard; just my shares shown here (too many option spreads to screen capture in one image...)

     

  • Reply 11 of 21
    badmonkbadmonk Posts: 826member
    For once, an analyst gets it..reasonable prediction.
  • Reply 12 of 21
    Quote:

    Originally Posted by Retrogusto View Post

     

     

    The average P/E of Microsoft, Google, Facebook and Oracle is 34.64, which is more than double the 15 that she is assuming for Apple. I'm not saying that 15 is unrealistic given the market's history of undervaluing Apple, but it's hardly "in line" with those other firms--in fact, all of them are above 15, and Facebook's is 74.69.




    Apple shareholders will likely never see Apple with a P/E of 19.  It's just too farfetched considering how conservative Apple's P/E has been for the past few years.  I think seeing $140 for the year is about as good as it's going to get unless by some miracle AppleWatch does become some huge sales success and that I don't think even Apple will get that lucky.  Anyway, it's not what I think, but it's likely Wall Street investors will continue to stay stingy with Apple's value while boosting Google, Microsoft, Amazon and Netflix to ever higher premium levels.  I can't even imagine why Facebook is worth as much as it is but it sure put Mark Zuckerberg's fortune up there in lights.  I suppose it's just a matter of being in the right place at the right time.

  • Reply 13 of 21
    thomprthompr Posts: 1,511member
    Quote:

    Originally Posted by Retrogusto View Post

     

     

    The average P/E of Microsoft, Google, Facebook and Oracle is 34.64, which is more than double the 15 that she is assuming for Apple. I'm not saying that 15 is unrealistic given the market's history of undervaluing Apple, but it's hardly "in line" with those other firms--in fact, all of them are above 15, and Facebook's is 74.69.


    As Facebook is an outlier, I certainly wouldn't average it with the other three and then try to prove a point with that number.

  • Reply 14 of 21
    mj webmj web Posts: 918member
    Ha, good ol' Katy Huberty, forever memorialized for putting a sell on AAPL @ 80 just before it rose to 700 . She should've been banned from Wall Street for life that day but I must concur that AAPL will test 160 in 2015.
  • Reply 15 of 21
    sog35 wrote: »
    I feel that $160 is a little too optimistic.


    $140 by year's end is more realistic.

    $140 is less than 5% higher than the high of $133.60 this year.

    With that little potential upside I would not even hold the shares.  I think it hits at least $150 this year as long as we don't have a market wide crash.

    The shares have already risen 18% this year.
  • Reply 16 of 21
    Facebook has a PE of 72. Why is AAPl's low PE in line with that?
  • Reply 17 of 21
    Actually $160 is conservative. $140 we should break through by the end of April. You see, for years now Wall St has completely underestimated Apple. You can see how low its PE is, lower than INTC, MSFT,. CSCO, all but HP in fact, the lowest in the tech large cap group except HPQ.

    I assume Apple will once again blow out earnings estimates in April due to Chinese New Year and the mega growth of Iphone ownership globally. And if the Apple Watch sells briskly that it a catalyst too. These earnings beats usually result in a 10 point move. So $139 is perfectly possible by then.

    Then assuming Apple has a few major cards up its sleeves and continues beatings earnings estimates, I believe 149 is a resistance poinbt, but if they break through that $159-160 is probably, all this year.

    I would recommend anyone buy AAPL now, but especially if there is another sell-off between earnings periods like there was 2-3 months ago. I loaded up then during the oil price crisis when AAPl went down 14 points and a month later cashed out those shares for $140,000 profit.

    Also any large hike in dividend or buybacks will be a catalyst. Expect that in April too.
  • Reply 18 of 21
    Yes, but all of those companies innovate and Apple doesn't. Also, Steve Jobs.

    And rounded rectangles.
  • Reply 19 of 21
    retrogustoretrogusto Posts: 737member
    Quote:

    Originally Posted by thompr View Post

     

    As Facebook is an outlier, I certainly wouldn't average it with the other three and then try to prove a point with that number.




    I didn't choose those four names, the article did, claiming that those four companies had P/E ratios that were "in line" with the P/E of 15 predicted for Apple. All I'm doing is putting numbers to the names to show how it's not true, either separately or as a group average. Either of my previous numbers proves my point, but I can elaborate: Google has a P/E of 28.18, which I'm sure you will agree is also significantly higher than 15. Oracle (18.39) and Microsoft (17.71) are remotely in the neighborhood, but even if we average just these two, it's 18.01, which is still just over 20% more than 15. If that seems inconsequential, consider that 20% of Apple's current market cap would be roughly $150 billion.

  • Reply 20 of 21
    MacProMacPro Posts: 18,367member
    sog35 wrote: »
    Your estimates are way too low for profit IMO.

    This is FY2014 profit:

    Q2 - $10.2 billion
    Q3 - 7.7 billion
    Q4 - 8.5 billion
    Total - 26.4 billion

    Apple has already guided for Q2 to have 20% revenue growth.  That should translate to 25-30% profit growth.  I expect to see at least 20% profit growth for Q2-Q4.

    26.4 billion x 120% = 31.68 billion profit Q2-Q4
    Add Q1 $18 billion = $50 billion profit

    $50 Billion x 17.5 PE= $875 billion market cap

    That gives you a price of $150

    And that does not even factor dividends or the shrinking of available shares.

    I concur.
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