Katy Huberty raises Apple price target to near Street-high $368

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).

Huberty apple target 368

Click to enlarge.

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…

Huberty apple target 368

10 Comments

  1. Gregg Thurman said:

    I asked, but Katy refused my marriage proposal.

    3
    January 17, 2020
    • David Drinkwater said:

      I was thinking the same thing:

      “Man, baby, you are really good for me!”

      0
      January 17, 2020
  2. Aaron Belich said:

    Interesting, every analyst has written off the HomePod and AppleTV hardware. I see it as an opportunity for change and improvements in their respective future iterations.

    HomePod with built in mesh networking. Acceptance of audio channels from non-Apple devices (consoles from Sony, MSFT, Nintendo are massive opportunities) and subsequently allowing the use of AirPods with them.

    ApplyTV with first party game controllers – partner with one of the big three for the hardware if need be. This would really cement Apple Arcade into the living room in addition to the mobile domination and the Play Anywhere type of attitude that Nintendo owns with their Switch console.

    0
    January 17, 2020
    • John Konopka said:

      I just bought a pair of HomePods to replace some really old bookshelf speakers I had that sounded kind of muddy. The sound is awesome.

      0
      January 17, 2020
    • David Emery said:

      “HomePod with built in mesh networking.”

      A lot of IoT things will depend on reliable, -secure-, easy to manage networking. I think Apple made a strategic mistake by dropping its network products. (And a bunch of Apple network hardware showed up on Woot today, probably closeouts from Apple or from Amazon. 🙁 )

      0
      January 18, 2020
  3. Jerry Doyle said:

    Wonderful for Katy H….

    @Gregg Thurman: If I ask Katy H, do you think I may stand a chance?

    Off topic, but it has to do with Katy’s downgrade of IBM. IBM is one of the top “Dogs of the Dow” listed at the end of 2019. Warren Buffett after multiple years of frustration threw in the towel and departed as a major shareholder of IBM. I stayed. Bad decision! I later cashed out and placed my money in Apple. Good decision!

    I participate in a chat discussion with IBM shareholders who seem contented with the way IBM is going. I asked, why is Ginni Rometty still CEO? The consensus answer was: “… because the shareholders want her as CEO.” I then retorted as follows: “…. Ginni Rometty became the CEO of IBM in 2012. On December 31, 2012 the last trading day of the year IBM closed at $189.83. On December 31, 2019 the last trading day of the year IBM closed at $134.04. During Ms. Rometty tenure as head of IBM for the past seven years the stock price has declined approximately 30 percent. Is this the type of investment growth envision and desired by IBM’s Board of Directors and by IBM shareholders? I doubt any of you will answer in the affirmative.” (None answered in the affirmative).

    I went on to say, “… Any CEO is entitled to a five year plan, but we are moving fast beyond that period and not only do we see no progress, we see regression. At what point does the members of the governing board of IBM say enough? Respectfully, I cannot accept your answer that IBM’s governing board and shareholders want mediocrity. There exists a lack of inspiration at IBM’s helm and it is time for a change in senior leadership. In fact, it is beyond the time for a change in senior leadership.”

    I then had an epiphany! IBM shareholders were happy with their 4.70% dividend. A change in CEO may upset the apple-cart, especially that dividend payout. I surmised shareholders must own tens of thousands of shares and were contented to live off the nice pay-out of dividends. I am sure they would welcome stock price growth, but the dividend payout was more important to them.

    My epiphany above on IBM gave me a much more richly and immeasurable appreciation of Apple. Apple isn’t about giving shareholders the highest dividend payout. Apple isn’t about growth at any cost. As a friend reminded me this morning, “…. Apple is about finding the Northstar, acquiring the needed talent and infrastructure to inject into the Apple DNA to fulfill and to compliment Apple’s base business. Apple points itself in a direction it wants to go and does so nimbly, so as not to trip and obfuscate over the sheer weight of something too large resulting in losing that Northstar.”

    My take: Apple indeed has struck the proper balance between share price growth and dividend payouts for its shareholders.

    2
    January 17, 2020
    • Gregg Thurman said:

      @Gregg Thurman: If I ask Katy H, do you think I may stand a chance?

      I’d be hurt if she accepted your proposal, after rejecting mine.

      1
      January 17, 2020
  4. Gregg Thurman said:

    Share appreciation is always better than a dividend. The difference between them (other than the amount earned) is that dividends are paid quarterly, while stock appreciation isn’t paid out until it is sold (after which you own nothing).

    0
    January 17, 2020
  5. John Konopka said:

    Apple hit another new high today, $318.73. Closing high on a Friday with good volume. We could see $350 in a couple of months.

    0
    January 17, 2020
    • Gregg Thurman said:

      $350 is the current consensus among the top 10 price targets ($325 and above, everyone else is underwater). I peg that print as occurring in April. That’s a 10% upside. The historical nine-year average move from JAN earnings to April earnings is 9.0%.

      0
      January 17, 2020

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