Amid a round of downgrades (including IBM and HP), Morgan Stanley’s veteran tech analyst gives Apple a timely boost.
From a note to clients that landed in my inbox Friday:
We raise AAPL estimates and PT to reflect smartphone replacement cycles peaking and the upcoming 5G upgrade cycle. iPhone replacement cycle has stretched to nearly 4 years after the market shifted from subsidies to installment plans and the rate of technological change slowed. However, longer battery life and upcoming 5G technology which will enable new functionality like Augmented Reality combined with aggressive trade-in offers that subsidize upgrades for existing iPhone owners suggest replacement cycles can’t stretch much further and may in fact begin to shrink. At the same time, Apple has proven less earnings dependency on iPhone with the success of Services and Wearables which now make up 27% of revenue and 37% of profits. To reflect our views, we increase our FY21 iPhone unit estimate to 215M implying a 3.7 year replacement cycle (down from 4 years in FY20) which combined with our SoTP implied 22.2x target P/E multiple drives our new $368 PT (Exhibit 3).
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Maintains Overweight rating, raises price target to $368 from $296.
My take: Huberty can move markets. Her $296 target was the Street-high at the time and led to a round of upgrades. See here.
CORRECTION: An earlier version of this story mistakingly described $368 as “Street-high.” Davison’s Tom Forte beat her to it last week with a target of $375.
Below: Moving Targets chart, updated…