Morgan Stanley upgrades Apple stock
Analysts at investment bank Morgan Stanley have upgraded Apple to an “overweight” investment, a positive move, due to hot prospects for the new iPhone over the next 18 months.
The firm has looked into the immediate future of the iPhone and believes that the rest of the analysts are underestimating sales of the device for the near-term future. They see Apple emerging as the winner in the smartphone wars, and see the smartphone as the winner in the cell phone wars. As a result, their forecast is for an Apple with greatly increased revenues for the balance of 2009 and all of 2010.
Morgan Stanley analyst Kathryn Huberty, writing in the company’s investment message to clients, said, “The core of our stock call is that the iPhone’s success and higher margins will begin to mute the fundamental margin and growth risks in Apple’s core Mac/iPod businesses.”
Huberty was not shy in her appraisal. She raised the target price of an Apple share from $105 to $180, a truly significant increase, according to a Reuters story. All of that is based on a belief that sales of the iPhone will be much greater than are currently being estimated by the rest of the market, which will drive much greater earnings growth, estimate revisions and multiple expansion. In fact, she sees the iPhone becoming much more important to Apple, believing that the mobile device will drive about half of the company’s earnings per share on 2010. That is a significant increase from a 30 percent figure in 2008.
In her analysis, Huberty said, “We expect a price cut to the current generation iPhone to drive 50 percent to 100 percent (2 million to 4 million units) incremental unit demand. Our survey data suggests 15 percent plus of the iPhone installed base typically upgrade to a new phone.” All of that means drastically increased sales of the iPhone.
It looks like Huberty has connected the dots from reports over the last month or so about the superiority of the Apple App Store, the shiny nature of the iPhone itself, and the likely vast improvement of both in the next several months. Those factors, plus the changes that we are likely to see in pricing and cellular service plans, could put the iPhone in an almost unassailable position in the smartphone marketplace.
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