Morgan Stanley ups AAPL price target to $368 on potential of 5G iPhone supercycle

Posted:
in AAPL Investors edited September 2020
Morgan Stanley has raised its price target on shares of Apple, voicing its view that investors are under-appreciating the impact this year's 5G-enabled iPhone release is expected to have on the company's bottom line, especially given the roll-out is expected to coincide with a multi-year peak in the number of iPhones due for replacement.




In a note to investors seen by AppleInsider, Morgan Stanley analyst Katy Huberty increased her estimate for Apple with a new price target of $368, a considerable boost from the $289 the firm proposed in October. The hike was driven by a number of factors, but largely to "reflect smartphone replacement cycles peaking and the upcoming 5G upgrade cycle" she said.

The so-called "iPhone 12" or iPhone 5G" releases are expected to kick-start a replacement cycle that has stretched almost four years at this point. Forces leading to that extension include a market shift from subsidies to installment plans, as well as a slowdown in the rate of technological change, Huberty said.

Huberty sees new 5G connectivity and expectations of better battery helping to "enable new functionality" such as augmented reality applications. Aggressive trade-in offers subsidizing upgrades for existing iPhone owners suggest that current, lengthy replacement cycles "can't stretch much further and may begin to shrink," she added.

While the iPhone is still a major business factor for the company, Huberty points out the lower dependency on the smartphone's sales to the company overall, with Services and Wearables business segments now making up 27% of revenue and 37% of Apple's profits in Morgan Stanley's view. Estimates for iPhone sales in full-year 2021 have been increased to 215 million, on the basis of a 3.7-year replacement cycle, a number that is lower than the four-year cycle predicted for 2020.

These improvements, along with a change in the firm's "Sum of the Parts" calculation, lead to a new price-to-earnings ratio multiple of 22.2x. The increase in multiple drives the firms price target to $368 from $289.

The enhanced outlook for Apple was woven into a broader report where Morgan Stanley warns of larger issues with the IT industry as a whole, suggesting there could be "further deceleration in 2020 IT spend" due to corporate budget revisions.

In the same note, CDW is downgraded to $124 and "Underweight" over slowing PC demand, IBM was moved to "Equal-weight" over slowing core growth and a multiple reduction from 13x to 12x, and HPE was given lower sales estimates and a reduced price target for predicted flat revenue growth.

Apple is expected to "continue to outperform hardware peers" for calendar year 2020.

Morgan Stanley's comments arrive after similar statements in notes from analysts at Wedbush and Canaccord in the last week, with both firms predicting a big year for Apple's stock and valuation.

On Tuesday, Wedbush set a price target of $350, but believes $400 is possible if everything goes Apple's way in 2020, possibly leading to a $2 trillion valuation by the end of 2021. The expected supercycle for 5G iPhones, along with the strong potential for Apple's Services business, will help drive revenue in the firm's view.

The Canaccord note on Wednesday also predicts strong "iPhone 12" sales on top of high demand for the iPhone 11. Sustained Services revenue momentum into the next year pushes the multiple from 16x to 20x, and the price target from $275 to $355.

Morgan Stanley reiterated its "Overweight" rating on shares of AAPL, which were trading up $1.65 (or 0.52%) to $316.89 in afternoon trading on the NASDAQ stock market.

Comments

  • Reply 1 of 9
    lkrupplkrupp Posts: 9,991member
    I just voted my AAPL shares for the upcoming annual meeting 2/26/20. I voted FOR Tim Cook and AGAINST Al Gore. I also voted AGAINST three bullshit shareholder  proposals. UP YOURS, Cook haters!
    yojimbo007mwhitevisualzonelordjohnwhorfinpscooter63red oak
  • Reply 2 of 9
    yojimbo007yojimbo007 Posts: 1,161member
    lkrupp said:
    I just voted my AAPL shares for the upcoming annual meeting 2/26/20. I voted FOR Tim Cook and AGAINST Al Gore. I also voted AGAINST three bullshit shareholder  proposals. UP YOURS, Cook haters!
    Tim haters are bigoted morons living under a rock!
    visualzonelordjohnwhorfinSoli
  • Reply 3 of 9
    Steve knew what he was doing when he picked Tim. As an AAPL shareholder I could not hope for a better CEO.
    ronnSolired oak
  • Reply 4 of 9
    cg27cg27 Posts: 171member
    What do AAPL MSFT GOOG AMZN all have in common?  They’re run by engineers.  Perhaps I’m a bit biased but this is generally good vs having marketing schmucks ru(i)n companies.
  • Reply 5 of 9
    Steve knew what he was doing when he picked Tim. As an AAPL shareholder I could not hope for a better CEO.

    You/we could always hope for a better CEO, but there is no guarantee any CEO would be a better fit for Apple.  I had my doubts a couple of years back when everyone was saying there was nothing in Apple's pipeline and they wanted to fire Tim Cook.  Everyone wanted Cook to be the second-coming of Steve Jobs but I knew that wasn't going to happen.  Tim Cook has his own abilities and they seem to be working well enough financially and product-wise.  I'm AAPL long 2004 and I have no regrets.  All my expectations of Apple's performance have been far surpassed.
  • Reply 6 of 9
    jdwjdw Posts: 1,068member
    I voted too, but I followed the Apple Board recommendations, which included voting for Mr. Gore.  Politics and books (and even my burning desire for the return of an SD card slot in the MBP) have nothing to do with the fact AAPL shares have been and continue to do extremely well.  Rocking the balance by voting against Board recommendations is the last thing we need.  

    I've been a AAPL shareholder since 1999 and have never sold a single share.  It used to be less desirable to hold AAPL, but after the passing of Jobs, AAPL began to payout a dividend in 2012 that makes it a stock worth holding (at least until retirement).
  • Reply 7 of 9
    GeorgeBMacGeorgeBMac Posts: 11,421member
    I agree -- this September could well mark a supercycle for Apple.  
    Essentially, from an iPhone perspective they've been treading water since X.   Yes, each year brought incremental improvements and expansions, but nothing particularly game changing (the biggest was the Xr that created a full screen front / in a consumer priced phone).

    Various rumors report that in September we are likely to see:
    --  The roll out of the long delayed 5G technology across the product line.
    --  OLED screens across the product line
    --  ReIssue of the much loved SE in potentially 2 sizes -- which could return a small phone to Apple's line-up.

    To me, all of that sounds plausible.  And, if it is true, it could mark and exciting, major upgrade year for Apple.
  • Reply 8 of 9
    As per usual I read the proxy, then vote against continuing with the same Auditors. I think new auditors should be in regularly to prevent them becoming too comfortable with the management of a company and to take a fresh look to see if there's anything dodgy. I do this with all companies, not just Apple. I think it's healthy for new auditors to come in every few years.
    GeorgeBMac
  • Reply 9 of 9
    GeorgeBMacGeorgeBMac Posts: 11,421member
    As per usual I read the proxy, then vote against continuing with the same Auditors. I think new auditors should be in regularly to prevent them becoming too comfortable with the management of a company and to take a fresh look to see if there's anything dodgy. I do this with all companies, not just Apple. I think it's healthy for new auditors to come in every few years.

    As an ex-accountant I quite agree. 
    My first job as an accountant was at an RCA plant.  The books were being cooked and the auditors were looking the other way.  We accountants were told "Just give them some crumbs.  They won't go away till they find something, so give them something so they leave us alone."    And, a few accountants were charged with taking them out (usually to the local track) each night to show them a good time.   A few years after I left my boss's boss was fired for accounting fraud.  They tried to fire my boss but he had documented his objections each month and proved he was not part of the scheme.

    Another example is:  Had the bankers had honest auditors in 2007 we would not have gone through the Great Recession.

    Another area where we need that is in voting:   Every voting system needs to undergo random, unannounced audits by independent auditors just as a bank branch does.  Votes should be considered just as valuable to the voting system as dollars are to banks -- every one accounted for and verified.
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