Already the largest technology stock in the world with a market value of nearly $2.4 trillion, Apple features five under-appreciated catalysts that could send the stock higher by more than 50 per cent over the long-term.
That’s according to analysts at Morgan Stanley, who have conducted one of their regular deep dives on the company.
Find out how this innovative, heavily-owned favourite can can get even bigger.
by Morgan Stanley
We see five under-appreciated catalysts that can drive a re-rating over the next 12 months, cementing Apple as our Top Pick with new $180 price target (PT).
In the near-term:
- Weaker consumer electronics spending
- A challenging macro backdrop
- Foreign exchange (FX) headwinds
- iPhone production shortages, and
- Lingering COVID restrictions…
…are headwinds that are likely to result in Apple’s first fiscal year of revenue and earnings per share (EPS) declines since 2019.
However, if we look beyond the near-term, we see a catalyst-rich event path over the next 12 months that is under-appreciated by investors, including reaccelerating iPhone and Services growth, record gross margins, two new product launches, and the potential introduction of an iPhone subscription program.
Combined, we believe the first four of these five catalysts have the potential to drive a re-rating in Apple shares toward our new sum-of-the-parts driven $180 price target, with the launch of a hardware subscription program key to unlocking our $230 bull case valuation.
Taking into account our updated iPhone, Services and gross margin forecasts, we now model:
- $426.6 billion of revenue (+10% year-over-year (Y/Y))
- $7.15 of EPS (+20% Y/Y) in 2024, 3% and 9% ahead of consensus, respectively.
With the higher revenue base but largely unchanged peer multiples, our price target increases to $180 (up from $175) or 25x our 2024 EPS of $7.15.
Relative to the rest of our large cap hardware coverage, no other company has as many important catalysts, similar upside vs. consensus estimates, or commensurate upside to our price target as Apple, cementing Apple as our Top Pick for 2023.
- Pent-up iPhone demand should fuel above-consensus shipment re-acceleration in 2024, even with relatively conservative replacement cycle assumptions.
- Record installed base growth, a re-acceleration in App Store/GOOGL traffic acquisition costs (TAC), easing FX pressures, and pricing increases across nearly half of Apple’s Services business will return Services to double digit revenue growth in 2023 and 2024.
- Gross margin deep dive suggests ~150 basis points (bps) of average upside to consensus forecasts in 2023 and 2024.
- History shows you want to own Apple stock six-to-nine months ahead of key product launches, with Apple’s new augmented reality (AR) and virtual reality (VR) headset and the iPhone 15 launch both key upcoming catalysts.
- A hardware subscription launch would help unlock over $1 trillion of market cap and re-rate shares toward our $230 bull case valuation, 52 per cent higher from the current level.
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