Apple Stock (NASDAQ:AAPL)
On Friday, Morgan Stanley, the world’s largest investment bank, said that Apple (NASDAQ:AAPL) has five “underappreciated” catalysts that might drive the stock higher over the next 12 months, even though Apple’s market worth is nearing $2.4T.
Apple stock is rated “overweight” by analyst Erik Woodring because of the company’s potential to reap benefits from several factors, including increased growth for both the iPhone and Services, near-record gross margins, the introduction of two new products, and the possibility of an iPhone subscription service.
According to a letter from Woodring to clients, “we think the first four of these five triggers can drive a re-rating in Apple stock toward our revised sum-of-the-parts driven $180 price target,” with the introduction of a hardware subscription program being the key to unlocking the $230 LTV-driven bull case value.
Woodring said that while iPhone sales are expected to drop 9% year-over-year to 218M in fiscal 2023, pent-up demand could drive shipments “beyond consensus” in fiscal 2024.
Apple’s iPhone business may start to experience a resurgence in fiscal 2024 as manufacturing normalizes, consumer spending improves, and a new iPhone launch releases “pent-up demand,” according to Woodring. This is due to many factors, including a projected lengthier replacement cycle, currently thought to be 4.4 years, up 0.7 years from a previous poll.
Apple’s Services division, according to Woodring, may witness double-digit revenue growth in fiscal years 2023 and 2024 as a result of the company’s installed base, increased App Store growth, payments from Google to be its preferred search engine, reducing foreign currency headwinds, and recent pricing hikes.
The analyst also predicted that in fiscal years 2023 and 2024, Apple’s gross margins will exceed expectations by around 150 basis points due to weakening foreign currency headwinds and continuing reductions in supply chain expenses.
Our research leads us to believe that the decade-high 43.5-44.5% gross margin estimate in the March Q is still 2-3 points below where we envision gross margins peaking in the next 2 years,” Woodring said.
As well as the iPhone 15, which is expected to be released in the autumn, Apple is expected to release its much-anticipated mixed reality headgear in June. According to the statistics cited by Woodring, Apple stock has historically outperformed “the S&P by 20 points, on average, in the 6-9 months ahead of each iPhone introduction, driven by [multiple expansion] ahead of cycles that deliver above-average iPhone sales growth.”
In addition, Woodring said that the company’s market valuation might increase by as much as $1T if it were to introduce its long-discussed hardware subscription service.
The price of Apple stock increased by 2.5% during the early trade on Friday.
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