Huberty: Apple could be headed to $162 per share

Better-than-expected iPhone 7 sales, she says, are already priced into the stock.

Morgan Stanley’s Katy Huberty has added her voice to the chorus of analysts reacting to the iPhone 7’s strong sales (see here) and the Samsung Galaxy Note 7’s melt-down (here). In a note to clients Friday, Huberty modestly increased her iPhone estimates for fiscal 2016 Q4 (to 44 million from 43 million) and 2017 Q1 (74 million from 72 million) and nudged her 12-month price target up $1 (to $124 from $123).

But that’s old news, she says, largely priced into the stock’s current price.

Not priced into the shares is her so-called bull case. “We’re increasingly confident,” she writes, “in the upcoming iPhone supercycle driving meaningful estimate revisions and the stock towards our $162 bull case.”

Huberty has long offered a “bull” and “bear case” to go with her official “base case,” but she rarely point to either with any conviction.

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This time is different, thanks to what she calls the coming iPhone supercycle—a combination of pent-up demand from weak sales of the last iPhone and growing interest in the next one—the 10th anniversary edition. Huberty has been banging the drum for the supercycle since June, and other Apple analysts are starting to pick up the theme. See here.

If Huberty’s estimates carry a little more weight than the rest of the pack, it’s in part on the strength of Morgan Stanley’s proprietary AlphaWise surveys. These are Google Trends searches adjusted for global sales estimates by fine tuning the search criteria in each country.

How accurate are AlphaWise’s iPhone shipment estimates? Here’s the five-year track record:

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Click to enlarge.

I’ve seen worse. Much worse.

27 Comments

  1. George Providaked said:

    The chart showing past performance in predicting Apple performance was terrific. It would be great to see more of these charts whenever analysts or pundits/bloggers speak. It helps put their comments in perspective as well as encouraging better prediction tools.

    2
    October 14, 2016
  2. Fred Stein said:

    C’mon Katy. You raised your iPhone sales estimate by 2.6% but your target by only .8%.
    Still thanks for sharing the AlphaWise data.

    0
    October 14, 2016
  3. Richard Overstreet said:

    Hi, first time poster. Could someone explain to me why analyst speak in mostly dollar targets as opposed to multiple targets; expressed in dollars. The thing that always strikes me as funny is how little discussion (in main stream business publications & w analysts) is why Apple is valued at such a low multiple . This always seems to be the elephant in the room when it comes to these targets for me. Is it just universally accepted that AAPL”s value (as measured per multiple) will never be near the market’s avg?

    1
    October 15, 2016
    • The analysts do speak in multiples in the sections of their notes where they justify their price target. Here, for example, is Huberty. explaining her three price targets (bull, base, bear):in terms of multiples of 17x, 14x and 11x, respectively.

      Bull: “We assume a 17x P/E multiple, in line with US, large-cap platform companies across industries, or 14x adjusting for Apple’s net cash.

      Base: “We assume a 14x P/E multiple, which is in line with where shares traded ahead of the iPhone 6 supercycle. This assumes 11x adjusting for Apple’s $153B of net cash, which is closer to mature technology companies.”

      Bear: “P/E multiple falls to 11x or 7x after adjusting for Apple’s net cash balance, in line with the lower-end of recent trading range.”

      0
      October 15, 2016
      • Richard Overstreet said:

        Thank you for the reply.
        So does that mean that Microsoft is not seen as a “mature large Cap platform” given its P.E.? Is anybody expecting a large growth spurt from MSFT?

        0
        October 15, 2016
    • Robert Paul Leitao said:

      Richard:

      That’s a good question. Katy Huberty did reference earnings multiples in her revised price targets. A couple of things need to be considered in Apple’s valuation based on multiples and how Apple’s earnings multiple might differ from other enterprises.

      The first qualifier is the company’s market cap which is already well over $600 billion or above 6/10s of a trillion dollars. That alone puts the company in a very rare class of enterprises. To my knowledge, at this time only Alphabet and Apple have market caps above one-half trillion dollars. Microsoft is a distant third at a market cap of about $450 billion.

      Second, Apple is engaged in a massive share repurchase program which makes the fully diluted share count more of a moving target and that number is a component of eps and ultimately the multiple ratio.

      Third, Apple is considered primarily a device maker. Although services revenue is rising at double-digit rates on a quarterly basis, hardware makers tend to have lower multiples than services enterprises.

      In my view, net income growth is the primary driver of share price appreciation and as Apple returns to strong rates of net income growth (as early as the December quarter), the multiple will take care of itself. At present the market is expecting a year-over-year revenue decline in the December quarter and a decline year-over-year in eps. My view is that isn’t going to happen.

      0
      October 15, 2016
    • Fred Stein said:

      Hi Richard, and welcome.
      Adding to other’s responses.
      Some good and bad reasons for Apple’s low multiple. Very brief highlights
      Good: Apple’s overseas profits (about 1/2) have to be discounted by some hypothetical repatriation tax. Markets generally overcompensate for unknowns. Unless Apple repatriates some of the overseas profits, there’s a limit to the cash for repurchase and dividend increases. (Note that since Apple said they would repatriate the stock has gone up – but so have iPhone 7 estimates).
      Bad reasons: The recurring myths: SmartPhones will commoditize eroding Apple’s margins / The SmartPhone business is near saturation / Too big to succeed ( aka. Law of Large Numbers) / Can’t innovate anymore. Each of these (and more) could be a short article. Addressing just one:
      Can’t innovate: There are many innovations deep inside the two new products IP7, Watch Series 2. Apple arguably has the best performing and best performance per watt of any SmartPhone as a result of $B’s spent by them and $Bs by their foundry TSMC. In contrast, Samsung had to pack a much bigger battery inside their Note 7, which journalists hailed the industry leading. Brute force does not equal innovation. Mark Hibben’s article, http://seekingalpha.com/article/4012175-apple-tsmc-confirms-strong-iphone-7-launch goes into detail and convinces me, for one, that Apple with TSMC are poised to pull ahead of the entire mobile and perhaps wearable device world over the next 10 years.There’s tons more innovations in imaging, AI, sensors in the IP7. The Watch, now waterproof and with GPS, is twice a useful to customers. In a couple years the Watch will hit a price point needed for real growth.

      0
      October 15, 2016

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