Morgan Stanley’s Katy Huberty raises her Apple target $1 to $162

Sending a small signal to the Street that she finds the Apple bear case unpersuasive.

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

Incoming call volume on Apple is as low as we can remember over the last 5 years, which we believe stems from 4 main factors.

    • First, we are at a seasonally low period in the iPhone cycle, which creates a demand information vacuum and elevates the relative impact of supply chain noise.
    • Second, Apple is increasingly in the eyes of regulators, and while we believe their model is defensible, regulatory risk is likely to remain a stock overhang (we’d argue it is for Apple’s comps as well, reflected in peer multiples).
    • Third, as the world slowly returns to normal, there are concerns that cyclical work and learn from home demand will decelerate at the same time Apple faces increasingly difficult comps.
    • And fourth, investors fear that a more evolutionary (rather than revolutionary) iPhone s-cycle will lead to extending iPhone replacement cycles and Y/Y revenue declines next year, increasing the likelihood of negative estimate revisions in FY22.

We recognize these risks but have a more positive outlook. In the near-term, we believe the June quarter will be stronger than originally expected as iPhone and iPad builds are tracking ahead of our model, and we increase June Q revenue and EPS estimates 3-5% as a result (3).

However, we also recognize that the Apple bear case of double-digit revenue declines and EPS pressure in FY22 will not be disproven in the June quarter, making Apple’s catalyst path more back-end loaded this year.

Nevertheless, we believe that Apple can drive low-teens annual revenue growth and high-teens annual EPS growth between FY20 and FY23, which supports our 31x EV/FCF target multiple.

Maintains Overweight rating, raises price target to $162 from $161.

My take: This is the first of two bullish notes from Huberty this morning. She’s going after the Apple bears with both barrels.

Below: A sneak peek at Huberty’s Earning Smackdown number…

apple katy huberty 162

2 Comments

  1. David Emery said:
    A 0.6% change is -in the noise- for estimates. Despite my respect for Ms Huberty, I find this change to be bogus. It feels more like click-bait. What’s the margin of error for these kinds of estimates, anyway? I’m fine with the text, but pushing a $1 number implies a degree of accuracy in estimates that we all know is not there.

    In general, I’m highly critical of scientific journalism for plucking numbers and printing them, without the associated uncertainty/error range that puts numbers into context. Same thing applies here.

    6
    June 24, 2021
  2. Dan Scropos said:
    Earnings should be far better than both Katy and consensus. $1.11-ish.

    0
    June 24, 2021

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