Morgan Stanley raises Apple target to $161

From a note to clients by Morgan Stanley analyst Katy Huberty that landed in my inbox Wednesday:

Steady supply chain and demand data points clear path to supercycle.

Morgan Stanley’s AlphaWise tracker, which compiles sell-through data using web search analysis, indicates 60M unit demand for the March quarter. Historically, our Tracker has been accurate directionally, though we think the magnitude of the iPhone demand upside this quarter is likely overstated, and attribute some of the upside to elevated search interest in anticipation of the 10th anniversary iPhone launch.

Net, we maintain our 51M March quarter iPhone forecast, roughly in-line with consensus, raise March Q ASP 2% to $675, and see the company reporting revenue at the upper end of the $51.5B to $53.5B range (our new estimate is $52.9B, up from $52.2B). We continue to expect a 38.9% gross margin, at the upper end of 38-39% guidance range, and EPS of $2.03, in line with consensus.

Reiterate Overweight, raise price target to $161 from $154. 

What stands out in Huberty’s charts is the magnitude of China’s pent-up iPhone demand:

Click to enlarge. Not seeing the bar chart? Try the website. 

2 Comments

  1. Fred Stein said:

    This is a “law of large numbers” that I like: Large IB to buy upgrades & Apps. Thanks Katy.

    1
    April 19, 2017
  2. Robert Paul Leitao said:

    I’m much more interested in Katy Huberty’s narrative (which is almost always excellent) than the firm’s quarterly estimates. The quarterly estimates are almost always quite conservative. The firm’s observations on iPhone interest, based on web search analysis, suggests heightened interest heading into the release of new iPhones this fall.

    The free cash flow that will be generated in FY2018 and FY2019 is arguably more important to investors than the reported net income and earnings per share. As the company continues to return massive amounts of capital to shareholders through the company’s dividend policy and share repurchase plan, the $161 price target is apt to be revised higher as we move closer to the release of the new iPhones this fall.

    0
    April 19, 2017

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