Morgan Stanley retains Apple as the first choice in the wake of the company’s March quarter results, which has bolstered the positive outlook for long-term investment banking.
Morgan Stanley’s thesis remains unchanged, as the company still expects sustained service growth and a solid iPhone 5G upgrade cycle to generate revenue in 2021.
In an investor note seen by Appleiphonestop on Friday, senior analyst Katy Huberty said Morgan Stanley’s confidence in Apple’s long-term sustainable growth remains unchanged.
This thesis is based on a trio of factors, including a stretched iPhone replacement cycle and the next rumored release of a 5G “iPhone 12” in the fall, a benefit to service revenue and the solid overall assessment of Apple. Huberty notes that Apple’s March quarterly results give Morgan Stanley several reasons to adjust its estimates in the future, even in place of Apple’s lack of guidance in June.
For one thing, trends in demand for Apple products are all showing signs of recovery. The revenue trend improved in March and again in April in China, while global demand also increased steadily in the second half of April.
The investment bank has modeled the deterioration in revenues from iPhones and portable clothing in the June quarter, but Huberty points out that growth trends for Macs and iPads should actually improve year over year. – a measure that ends better than the firm originally planned.
“Net, we’re increasing our Mac iPad and Wearables forecasts, slowing service growth and keeping our iPhone estimates relatively unchanged,” wrote Huberty.
While the product line change and headwind are driving Morgan Stanley’s margin forecast short-term, Huberty adds that Apple remains committed to generating return on investment and investments for long-term growth.
The investment banking base case predicts continued growth in services and an iPhone 5G upgrade cycle leading to double-digit revenue growth throughout 2021.
Morgan Stanley raised its 12-month price target to $ 326 from $ 298. This is based on a multiple of the company’s sales value (EV / Sales) of 3.7x on mature Apple business on iPhone, iPad and Mac, a multiple of 3.8x EV / Sales on devices laptops, home and accessories, and a 7.1x EV / Sales multiple on services.
Huberty said this translates to a target EV / Sales multiple of 4.4x and a multiple price / earnings of 21.8x for fiscal year 2021.
Apple shares were trading at $ 289.40 on the NASDAQ on Friday, down 1.49%. The NASDAQ itself was down 2.67% at the time of publication.