Thursday, November 10, 2005, 02:40 pm

Morgan Stanley remains bullish on Apple

By Tariq

Apple Computer is evolving into a growth-driven portfolio franchise, says Morgan Stanley, which once again raised its price target on shares of the company's stock.

In a research note released to clients on Thursday, analyst Rebecca Runkle said evidence of the "halo effect" continues for Apple, with recent product introductions setting the company up for what’s likely to be an impressive holiday season.

"We think Apple's consumer and professional product portfolios will continue to expand next year with new Intel-based Macs, additional digital content and penetration even further into the digital living room," the analyst added.

With an expanded iPod installed base of 27 million this year (vs. 5 million a year ago assuming a 2 year replacement cycle), Morgan Stanley believes new iPods, extended digital content and recent Mac refreshes should drive "impressive" December quarter results.

Given Apple's fixed cost retail model, potential for improved professional CPU growth and expanded consumer product portfolio, the firm believes additional opportunities exist for margin and valuation expansion over time.

As a result, Morgan Stanley raised its price target on Apple shares from $60 to $70 and reiterated its "Overweight" rating on the stock, meaning it expects the return on Apple shares to "exceed the average total return of the analyst's industry coverage universe, on a risk-adjusted basis over the next 12-18 months."