Morgan Stanley raises Apple price target, pushes stock to new highs

Analyst Katy Huberty has bucked conventional wisdom on Apple TV+ and put her chips on a Street-high $289.

From the StreetInsider:

Morgan Stanley analyst Katy Huberty raised the price target on Apple (NASDAQ: AAPL) to $289.00 (from $247.00) while maintaining an Overweight rating. The price target is a new ‘Street High’.

The analyst comments “The market is skeptical that Apple TV+ will be an NPV+ investment. Our in-depth analysis tells a different story with TV+ accelerating Services growth to 20% in FY20 and becoming accretive to EPS in FY21, assuming just 1 in 10 AAPL users subscribe by FY25.”

Huberty sees Apple TV+ boosting Services revenue growth by 2 points in FY20, adding 1 point, on average, to Apple EPS in FY21 and beyond, and contributing an incremental $3 per share to Apple’s valuation.

Maintains Overweight rating, raises price target to $289 from $247.

UPDATE: From Morgan Stanley’s internal summary:

Huberty sees Apple TV+ boosting Services revenue growth by 2 points in FY20, adding 1 point, on average, to Apple EPS in FY21 and beyond, and contributing an incremental $3 per share to Apple’s valuation.

The market view is that with the launch of TV+, Apple (OW, $289) is entering a new, more capital intensive market with a low probability of generating a positive return for shareholders. Based on MS Research Analyst Katy Huberty and the GVAT team’s in-depth analysis of the accounting treatment and economics behind Apple’s soon to launch streaming video service, she disagrees, and sees Apple TV+ boosting Services revenue growth by 2 points in FY20, adding 1 point, on average, to Apple EPS in FY21 and beyond, and contributing an incremental $3 per share to Apple’s valuation.

Katy’s new $289 price target (20% upside; up from $247 previously) is derived from a sum-of-the-parts analysis now based on FY21 estimates rather than FY20, as she believes FY21 estimates better capture the sustainable earnings power as new Services, like TV+, ramp and iPhone returns to growth as replacement cycles peak and 5G drives device upgrades. Additionally, Katy’s new $407 bull case (69% upside; up from $339 previously) reflects a more meaningful ramp in Apple TV+ users and a re-accelerating iPhone replacement cycle to 3.5 years (from closer to 4 years today).

My take: This is a big upgrade from an influential analyst. Working to get my hands on a note from Bernstein’s Toni Sacconaghi, who has reportedly raised his target to $225 from $205,

11 Comments

  1. Fred Stein said:
    I’m a big fan of Katy. Her reports combine data and insight to create a multi-year DCF.

    The market as a whole, responds to rumors and blather. Hence, investors have to respect the “Stupidity of crowds”.

    3
    October 23, 2019
  2. Gregg Thurman said:
    Don’t bother posting Sacconaghi’s missive. Without reading it we already know his conclusions will be (politely) muted.

    2
    October 23, 2019
    • Aaron Belich said:
      Aww, c’mon, I want Mr. Michael T. to rage on him some more!

      2
      October 23, 2019
      • Michael Thompson said:
        @aaron

        I take special pleasure in cracking Cretinous Toni’s metaphoric head open because of two reasons:

        Reason 1: Apple’s #1 Analyst CNBC. According to what fake news organization is this worthless Hampton’s Charity Circuit Pig (yes he’s there too) Apple’s #1 Analyst? Based on what criteria? Being as wrong as you can possibly be for years. This turd added extra torment to every Apple long for years. Fuck you Toni.

        Reason 2: “Apple’s best days are behind it.” Worthless Sack 0’Shit-a-naghi has repeated this mantra annually since 2015. Are there any real business journalists? If there were, Toni the Rat would be questioned about the fact that revenue, net income and EPS in 2018 were higher than ever and soon we’re about to hit all NEW RECORDS. Doesn’t sound like Apple’s best days are behind it, does it Punk Toni?

        2
        October 23, 2019
  3. David Drinkwater said:
    Wow. The Bull Case of $407 is crazy (not meaning bad or inaccurate, but just that it’s a boffo big number). I won’t claim it’s correctness or incorrectness, but if it did come true in 12-18 months, I wouldn’t be complaining.

    I just wonder how long those of us who wish to hold will have to wait for an increasing dividend.

    1
    October 23, 2019
    • John Konopka said:
      The dividend goes up once a year, announced around April or May.

      Whatever happened to Michael Blair? Did he capitulate?

      0
      October 23, 2019
  4. Paul Chou said:
    RE: Toni S’s price hike to $225. Hmm… are you sure you are not referring to his price hike to $225 from $200 this time last year?

    1
    October 23, 2019
  5. Adam Foster said:
    How about another 7 for one split in my lifetime!!!

    1
    October 23, 2019
    • Aaron Belich said:
      As the big brokerage houses start to offer fractional shares… will anyone split ever again?

      0
      October 24, 2019

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