Fwd: Apple, Inc.: 2017 Top Pick with Growing List of Catalysts
Wealth Management
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January 8, 2017
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Apple, Inc.: 2017 Top Pick with Growing List of Catalysts
Katy L. Huberty, CFA — Morgan Stanley
January 8, 2017 10:00 PM GMT
The market is focusing too much on near-term supply chain noise and not enough on three potential catalysts: 1) iPhone supercycle led by China, 2) cash repatriation, and 3) US tax reform. Apple is a top US IT Hardware pick in 2017 with 26% upside to our PT, 61% upside to bull case.
pent-up Apple demand, is a top especially pick in US in IT China, Hardware ahead in of 2017 a major with form several factor potential change catalysts. with significant First, recent technology iPhone enhancements, including improved battery technology. Second, Apple is the largest potential beneficiary of cash repatriation, with $216B trapped overseas. Third, while border adjustment provisions could limit upside, Apple could see as much as an 11 point reduction in tax rate. Of the three catalysts, we believe the iPhone supercycle is most debated by investors who see China as a risk, not an opportunity, after weak demand in recent quarters. Our view is that China consumer loyalty to Apple remains high, evidenced by stable market share of 80% at the high-end of the market, and that weak demand is a function of the lack of a form factor change during the iPhone 65/7 cycles which will be addressed with the AMOLED iPhone launch later this year. In fact, our analysis of China upgraders suggests that even a flat China upgrade rate next cycle will result in at least 20% iPhone unit growth, compared to current consensus of 10%. We expect supply chain data points and repatriation discussions to positively impact valuation beginning in late C1Q. At llx our FY18 supercycle) base case EPS, Apple trades at a discount to the 14.5x P/E multiple when iPhone 6 launched. We view a return to double digit iPhone unit growth, larger base of high margin, recurring services revenue, and increased access to international cash as multiple enhancers. Net, our 148 PT assumes a 14x multiple on base case FY18 EPS of $10.60. Higher Phone unit growth (20%+ vs. our 12% base case)
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Please see the full report for risks, disclosures and other important information.
Important disclosures regarding the relationship between the companies that are referenced in Morgan Stanley research and Morgan Stanley Wealth Management research are available on the Morgan Stanley Wealth Management disclosure website at https://www.morganstanley.com/online/researchdisclosures.
Morgan Stanley Wealth Management Not Acting as Municipal advisor Morgan Stanley Wealth Management is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 158 of the Securities Exchange Act (the "Municipal Advisor Rule") and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of the Municipal Advisor Rule.
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The copyright in materials provided by Morgan Stanley is owned by Morgan Stanley & Co. LLC. Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States.
© 2017 Morgan Stanley Smith Barney LLC. Member SIPC.
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Subject: Apple, Inc.: 2017 Top Pick with Growing List of Catalysts
Date: January 8, 2017 at 5:04:45 PM EST
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Wealth Management
Subscription Notification
January 8, 2017
Download Report
Apple, Inc.: 2017 Top Pick with Growing List of Catalysts
Katy L. Huberty, CFA — Morgan Stanley
January 8, 2017 10:00 PM GMT
The market is focusing too much on near-term supply chain noise and not enough on three potential catalysts: 1) iPhone supercycle led by China, 2) cash repatriation, and 3) US tax reform. Apple is a top US IT Hardware pick in 2017 with 26% upside to our PT, 61% upside to bull case.
pent-up Apple demand, is a top especially pick in US in IT China, Hardware ahead in of 2017 a major with form several factor potential change catalysts. with significant First, recent technology iPhone enhancements, including improved battery technology. Second, Apple is the largest potential beneficiary of cash repatriation, with $216B trapped overseas. Third, while border adjustment provisions could limit upside, Apple could see as much as an 11 point reduction in tax rate. Of the three catalysts, we believe the iPhone supercycle is most debated by investors who see China as a risk, not an opportunity, after weak demand in recent quarters. Our view is that China consumer loyalty to Apple remains high, evidenced by stable market share of 80% at the high-end of the market, and that weak demand is a function of the lack of a form factor change during the iPhone 65/7 cycles which will be addressed with the AMOLED iPhone launch later this year. In fact, our analysis of China upgraders suggests that even a flat China upgrade rate next cycle will result in at least 20% iPhone unit growth, compared to current consensus of 10%. We expect supply chain data points and repatriation discussions to positively impact valuation beginning in late C1Q. At llx our FY18 supercycle) base case EPS, Apple trades at a discount to the 14.5x P/E multiple when iPhone 6 launched. We view a return to double digit iPhone unit growth, larger base of high margin, recurring services revenue, and increased access to international cash as multiple enhancers. Net, our 148 PT assumes a 14x multiple on base case FY18 EPS of $10.60. Higher Phone unit growth (20%+ vs. our 12% base case)
This alert is sent from:
Andrew Atlas, com
You received this because you asked to be alerted to:
APPLE INC.
Please contact your FA if you want to unsubscribe from the alerts.
Disclosures:
Please see the full report for risks, disclosures and other important information.
Important disclosures regarding the relationship between the companies that are referenced in Morgan Stanley research and Morgan Stanley Wealth Management research are available on the Morgan Stanley Wealth Management disclosure website at https://www.morganstanley.com/online/researchdisclosures.
Morgan Stanley Wealth Management Not Acting as Municipal advisor Morgan Stanley Wealth Management is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 158 of the Securities Exchange Act (the "Municipal Advisor Rule") and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of the Municipal Advisor Rule.
Copyright
The copyright in materials provided by Morgan Stanley is owned by Morgan Stanley & Co. LLC. Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States.
© 2017 Morgan Stanley Smith Barney LLC. Member SIPC.