Morgan Stanley raises its Apple target $1 to $158

Analyst Katy Huberty expects Apple’s shares to “re-rate” when the company reports its fiscal Q2 earnings next Wednesday.

From a note to clients that landed on my desktop Wednesday:

High confidence in March quarter beat as ecosystem strength set to shine. We see a positive setup into Apple’s F2Q21 earnings report next Wednesday and believe that a strong beat and raise March quarter combined with more muted institutional inventor positioning relative to F1Q earnings will help AAPL shares re-rate after YTD underperformance (AAPL +0.3% YTD vs. S&P 500 +10.8%).

Most importantly, we expect next week’s report to highlight the strength of Apple’s diverse product and services ecosystem, which continues to push the boundaries of what is possible on a computing device, and which was strengthened today by new iMac, iPad and AirTag product launches (see last paragraph).

Following our quarter-end checks, we are raising our March quarter revenue forecast to $80.2B (+38% Y/Y) and expect every revenue segment to grow at least 19% Y/Y, with Product revenue set to grow 43% Y/Y off a COVID-impacted March 2020 quarter.

Our March quarter revenue and EPS are now 4-5% ahead of consensus, with the most upside in iPad and Mac, while our new FY21 revenue and EPS forecasts are 4% ahead of consensus (2). Our sum-of-the-parts driven price target increases to $158 (from $157) on the back of these changes and we expect positive estimate revisions (rather than multiple expansion) to support share outperformance keeping us Overweight.

Tweaking March quarter iPhone revenue forecast 1% higher on stronger ASP trends; units unchanged. We forecast 52M iPhone shipments in F2Q (+42% Y/Y), which is largely in-line with implied iPhone shipments based on our Greater China Technology Hardware research team’s March quarter iPhone build forecast of 50.5M units (3). Our lead time tracker showed a normalization in lead times for all four iPhone 12 models in the March quarter (4), suggesting Apple was able to increase supply to meet exceptional demand, particularly for the iPhone 12 Pro models.

Maintains Overweight rating and raises target to $158 from $157.

My take: Katy is the best, but a $1 price hike is exactly the kind of target micromanagement Downtown Josh Brown was complaining about last week. See: ‘Why don’t you let them screw up before you get bearish on Apple?’ (video)

22 Comments

  1. Ralph McDarmont said:
    Huberty has not been her typically bullish, but up is up, even if just a dollar. I expect a nice earning report. (Famous last words lol.)

    2
    April 21, 2021
  2. Fred Stein said:
    I strongly agree with both Josh and Katy – love ’em.

    Katy is not micro-managing, she’s being transparent and data-driven – new data means new PT. Her update is due to higher EPS and not P/E multiple expansion. Very good news.

    5
    April 21, 2021
    • David Emery said:
      “Katy is not micro-managing, she’s being transparent and data-driven – new data means new PT.”

      I have to think that $1 in $157 is well within the margin of error for these kinds of models. So I call “B.S.” on this change as being ‘data-driven’.

      1
      April 21, 2021
  3. Gregg Thurman said:
    Didn’t Katy just reduce her target by some ridiculously small amount because of multiple compression?

    Actually sounds like a more solid target based on her EPS increase and multiple compression.

    1
    April 21, 2021
  4. Jerry Doyle said:
    “…. $1 price hike is exactly the kind of target micromanagement Downtown Josh Brown was complaining about last week.”

    Like Josh Brown I say BS. Why did she even expend the effort? What has happened to our Katy? Guess she has been usurped by Daniel Ives.

    2
    April 21, 2021
  5. Bruce Oran said:
    Did anyone hear Cramer’s comments about Rod Hall this morning on Squawk Box? He essentially gave some credibility to him and, to paraphrase, states that if the quarter turns out to have a more consistent distribution with a “Blip,” than a sustainable direction, that Rod Hall might be on to something. It makes me a little nervous when Cramer is entertaining this possibility. At the same time, Katy Huberty, with all Apple has done to date, can only see another $1.00 upside from her previous forecast. Hopefully, as we suspect, Apple will blow them out of the water. I remember years ago when PED use to report on the compression spring effect of Apple’s share price, reducing the height (share price) by the coils being artificially telescoped into one another by analysts. Increasing the number of coils (products, profitability, etc.) without taking this into account by Wall Street allows for a bigger “pop” linearly when the sheer tension of the coils (profits, dividends, free cash flow, lines of revenue, innovation, and products) can no longer hold this upward decompressive force back. Some of the banks these sell-side analysts work for are the very ones who were buying up the stock when the coils were most tightly wound and profited the most when it uncoiled!

    7
    April 21, 2021
  6. bas flik said:
    this new iMac line up will hurt windows a lot. it is destined to outgrow iphone sales. M1 is under estimated by the street. its not a copy paste product. what competitors can do else than look and watch how their sales is eaten away by a hungry beast. i am now afraid my 225 estimate 2022 is to low.

    7
    April 21, 2021
    • John Konopka said:
      M1 is awesome. The new iPad 12.9″ is amazing. The new iMacs could become the standard conference room teleconference machine.

      It was interesting that we saw new products (iPad and iMac ) with the M1 but we didn’t yet see the M2 (or whatever they will call it) which would be for a higher end iMac and the Mac Pro. Apple is patiently following their game plan.

      1
      April 21, 2021
    • Gregg Thurman said:
      Bas, does your shop sell other Apple products, specifically Macs and iPads?

      0
      April 21, 2021
    • Bart Yee said:
      Bas, We would all be happy is your 225 April 2022 estimate is low!!

      0
      April 22, 2021
  7. Steven Philips said:
    @Bruce: “Spring Loaded” ? 🙂

    2
    April 21, 2021
  8. Dan Scropos said:
    Katy’s note is strong. She did NOT raise the price target $1. The math did. That wasn’t the point of the note, though. The point of the note was to point her belief in an earnings beat, and the strength of the refresh and the ecosystem. THAT is exciting. Ignore the $1 price target. That wasn’t the point of Katy’s note and she made that clear, at least for me.

    Her revenue is a few billion light, but it’s still nice to see a revenue estimate that starts with an 8.

    3
    April 21, 2021
    • Gregg Thurman said:
      I agree.

      Two things have changed in Katy’s Apple model:

      1/ Earnings multiple has “compressed”,
      2/ Earnings per Share has expanded.

      The net result doesn’t contain as much fluff as a higher multiple does

      0
      April 21, 2021
  9. Gregg Thurman said:
    I can’t wait to see gross margins on Apple’s computer segment during the September quarter. For me the real story is gross margin expansion in a moribund sector where the competition operates just above break even, while Mac share continues to expand with a strong potential for gross margin expansion (not to mention industry leading performance).

    1
    April 21, 2021
  10. bas flik said:
    gregg,
    we do not sell computers. as a retailer its difficult to make money on apple products.
    they keep all the profits for themselve. thats why i bought apple shares.
    the only way making money on apple as a dealer is buying the shares.
    i did this 10 years ago and make now more money with the shares than with my shop.
    we make money on carrier plans not on the phones.
    but i predict apple will also eat windows. what happened to Nokia will repeat.
    untill apple, Nokia had a market share of 60% in the netherlands.
    to us seemed to be unbeatable.
    so when apple started selling the iphone we really thought they could not beat Nokia.
    also htc and blackberry were big
    but only apple had good working touchscreens
    we sold thousends of HTC Diamonds. they became really hot in use and the screens were not really working.
    The iPhone was the only phone with a properly working touchscreen.
    i think this did it.
    Nokia HTC Blackberry all whiped away.
    you think its impossible which it is, but still it happened.
    and it will all happen again but now in the pc laptop market.
    by developing the processor, OS and applications you become untouchable.
    only Biden can hurt Apple and some sad people in Brussel.

    6
    April 21, 2021
  11. bas flik said:
    joseph i agree. most companies deliver software full of bugs or with horrible interfaces. billions of people hate to work with windows. They will revolt and demand M1 powered PCs.

    1
    April 21, 2021
    • Bart Yee said:
      This is the most important part of a potential Mac revolution. People are “used” to working with Windows and the thought of moving over to MacOs and a 1 button mouse is daunting to many if not most. Requires a sea change in thinking process. Yet it can and will happen, perhaps as noted for the younger generation and melt upwards. Us older folks who have grown up with PC’s will have to eventually face the fact that Windows is a programming dinosaur & resource hog, a security nightmare, and a kludg at best. Hardware PC’s have long reached a performance plateau with a consistently bad power usage profile, bulky box, and still endless parts/driver/motherboard etc. complexity that is just not needed any more. But it feeds into juvenile (IMO) needs to tinker, control, and piecemeal upgrade hardware. Rather than get on with doing productive work through clean interfaces and software.

      1
      April 22, 2021
  12. Bart Yee said:
    The big issue many naysayers claim (of course) is so what, the Mac / iPad hardware “may” be (grudgingly) superior but the utility of MacOS / iPadOS still lags behind the “vast” array of Windows based software. Many are looking to June’s WWDC to see where Apple, MacOS, iOS 15 and M1 based applications are leading. If Apple does, as Apple can do, reveal and unleash major upgrades and developer opportunities, and the developer community responds, then we come full circle in moving personal, mobile, and ultra-portable computing ahead, something that IMO Windows and Android have been unable to do.

    1
    April 22, 2021

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