Morgan Stanley’s Apple Bull case: $358. Base case: $200. Bear: $107

From a note by analyst Katy Huberty that landed on my desktop Tuesday:

Our $200 price target is sum-of-the-parts driven. We apply a 5.7x EV/Sales multiple on Apple’s Product business (iPhone, iPad, Mac, and Wearables) and a 10.9x EV/Sales multiple on Apple’s Services business, in-line with their respective peer groups. We also assign $301B of EV to Apple’s Future Products (AR/VR, Autos, etc.), which is driven by $22B of revenue and a 15x target EV/Sales multiple. This implies a 32.8x target P/E multiple.

BULL CASE $358.00. iPhone shipments reach all-time record in FY22. The combination of stronger than expected iPhone purchase intentions and mix shift to higher end iPhone 12 and 13 models (and NAND SKUs) drives an 18% 2 year iPhone shipment CAGR. Total revenue reaches $430B in FY22, while EPS reaches $6.50. We assign $1.1T in EV to Apple’s Future products, which equates to $56B of revenue ($74B disc. back from FY26) on a 20.5x EV/Sales multiple. Our $358 bull case valuation implies a 50x target P/E multiple.

BASE CASE $200.00. Sustaining growth off a record FY21. Flat Y/Y iPhone replacement cycles on the back of record high China upgrade intentions combined with Mac share gains, new Wearables launches, and sustained double digits Services growth drives 6% Y/Y revenue growth off a record FY21 base. Mix shift to higher margin iPhones & mix shift to Services drives 30bps of gross margin expansion, with $880B of share buybacks driving LSD EPS growth. Apple starts to get credit for its upcoming AR/VR glasses launch.

BEAR CASE $107.00. iPhone strength fails to materialize in FY22. After early outperformance, iPhone upgrade growth slows in early FY22 at the same time work from home demand trails off, causing a weaker than expected year of Product growth. Low-teens Services growth makes Apple more insulated from weaker consumer spending than other tech hardware peers. SOTP based bear case valuation of $107 implies 20.2x FY23 bear case EPS of $5.30 (vs. base case EPS of $6.09).

My take: Huberty’s base case prices in the glasses but not the car.

See also: Katy Huberty raises her Apple price target $36 to $200 — Updated with charts

21 Comments

  1. Fred Stein said:
    The market likes Katy. So do we.

    The sky is no longer the limit.

    6
    December 7, 2021
  2. Miguel Ancira said:
    Nice…My best case target of 400 does not look too far off.

    4
    December 7, 2021
  3. Jeff Galanti said:
    I can’t recall her 12 month bull case ever being over a 100% gain but I may be misremembering. If we hit that mark, there should be a lot of popped champagne bottles next New Year’s.

    4
    December 7, 2021
  4. Tommo_UK said:
    “My take: Huberty’s base case prices in the glasses but not the car.”

    So the so-called Base Case is $200 – WITH the AR glasses? What about if no AR glasses?

    Katy, stop it with the notes already. I love her devotion to picking through breadcrumbs and always have, but everyone is going AR and car crazy at the moment and that usually leads to a “dashing of expectations” as Apple “fails to excite with new product lines” and “loses its shine” as the “market takes a bite out of AAPL following lower than expected Q2 guidance.”

    Same notes, different decade. Enough with the cheer-leading. The TP raises are justifiable without including AR wearables, whatever form they might take, or cars to be launched in 3-4 years time.

    6
    December 7, 2021
  5. T R said:
    Trying to distill that chart, jumping-the-shark came to mind. I hope I’m mistaken.

    1
    December 7, 2021
  6. Daniel Epstein said:
    Well that is a pretty wide range of outcomes. Stock prices really have a lot of hot air in them if that is Apple’s true value range. Bear case is 30% of the Bull case. Base case is 56% of Bull case. Somehow I think Apple is a bit more stable and dependable in its current products revenue and revenue growth so I don’t see these new products providing appreciable revenue growth in the next year. Has her Bull case ever played out in the time frame of the Base Case price target? I can’t remember. Interesting how much potential she puts in these unreleased unannounced products. Not expecting much growth in current products in the base case. Personally I would be happy with 15% price appreciation per year but that may not sound too exciting to some.

    0
    December 7, 2021
    • Horace Dediu said:
      The wide range is because share prices are equal to a largely predictable fundamental value multiplied by a random number.

      8
      December 7, 2021
      • David Emery said:
        I’d say ‘pseudo-random’, because the distribution of values are not uniformly distributed 🙂

        2
        December 7, 2021
  7. T R said:
    Sorry to post before my second coffee. What is the gap between the probability distribution with a very long-tail top of $300. and the data fan from the left with a top of $358.?

    0
    December 7, 2021
  8. Tommo_UK said:
    @ T R
    I think it’s the trajectory and spread of infection by the AAPL EUPHORIA variant when wearing a mask versus not wearing a mask, at the point of violent exhalation after reading her note.

    2
    December 7, 2021
  9. Michael Goldfeder said:
    By comparison to Joseph, Jerry, Bart, Robert, Greg, and countless others on Apple 3.0, I’m still wet behind the ears to the timeline of being a holder of Apple stock on this site. However, I do remember receiving a letter from the corporate office of my financial firm after my position in Apple nearly doubled in my first year telling me in highfalutin language that I was a Dope if I didn’t diversify.

    Several years later I’m still a Dope, but feel like I’m riding “Secretariat at the Belmont”, as well as the coattails of Warren Buffet!

    Thanks for everyone’s continuing comments and input on this site as it has been extremely informative for everyone with an Apple position.

    Lurkers, sign up! I did! Best investment resource you’ll ever find!

    7
    December 7, 2021
  10. Robert Paul Leitao said:
    Reading through the post, I like the the “Bull Case” best. In the short-term (meaning the next six months), I’ll take the “Base Case” outcome. In reviewing the “Bear Case” I had to rub my eyes and look again to see who wrote it. It reminds me of someone else’s work. Never mind… I suppose the purpose of a “Bear Case” is to highlight the contrast with the “Bull Case.” Like I said, I like the “Bull Case” better. I like bears, but there are too many bear cases out in the wild and far too many of them are published without a bull case for contrast. That is what’s really wild.

    1
    December 7, 2021
  11. Aaron Belich said:
    AAPL is up about 300% since I started in 2018. Pales in comparison to my +1500% in TSLA, but after a couple years, I think I’m done with Musk’s electrification/ automation project as he continues to shed / shred what little humanity he has left.

    2
    December 7, 2021
    • David Drinkwater said:
      I dunno. I got into TSLA late, at $750, but those Gigafactories haven’t really started rolling yet, and I do not think the automobile is where Tesla will really make its mark. Think: Sustainability- broadly.

      0
      December 8, 2021
  12. Kirk DeBernardi said:
    After listening to oceans of talking heads, within my years of holding AAPL and having it compounded by the 7 to 1 and 4 to 1 splits, my brilliant investing wizardry and strategy amounted to this one single action…

    …I didn’t do anything.

    (I should write a book, huh?)

    2
    December 8, 2021
    • David Drinkwater said:
      Wei wu Wei. Daoist philosophy, perhaps poorly Anglicized.

      0
      December 8, 2021

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