Morgan Stanley raises AAPL target to $136 as iPhone 12 'revs the growth engine'

In a note to investors seen by AppleInsider, Morgan Stanley analyst Katy Huberty writes that she believes Wall Street has "mis-modeled" Apple's forward growth due to retail shutdowns and the economic impact of the coronavirus health crisis.

Huberty is maintaining the bank's iPhone shipment forecast of 220 million, which is about 4% above consensus. On the other hand, the analyst is raising its 2021 revenue and earnings-per-share (EPS) estimates based on slightly higher iPhone average selling prices (ASP) after the iPhone 12 and iPhone 12 Pro launch.

That's because the iPhone 12, iPhone 12 mini, and iPhone 11 prices are abut $50 higher than Huberty previously modeled. Morgan Stanley is raising its 2021 ASPs to $775, higher than the previous number of $772 and Wall Street's consensus of $763.

That places more upward pressure on ASP assumptions, despite the fact that Huberty believes the higher prices will lead to a "slightly higher mix of older iPhones." The launch does mark the first time that Apple has revealed five iPhone models in 12 months, and the new lineup has a much broader range of form factors and price points.

Although there weren't many surprises at the event, Huberty notes a few, including the fact that mmWave didn't translate to more expensive devices; earlier ship dates for the iPhone 12 and iPhone 12 Pro than what bears originally assumed; and the focus on multi-player gaming and augmented reality as ways to highlight 5G compatibility.

On the HomePod mini, Huberty says that the lower-cost smart speaker could grow Apple's total available market by 3.6x and help it expand beyond its current 5% market share. But she says that the "lack of killer apps and Spotify integration" will likely limit adoption.

In a broader view of Morgan Stanley's IT Hardware tracking, the bank said in a separate note that the iPhone 11 is still driving market share gains in China with 20.1% of the market at the end of September. Apple's Asia-based supply chain partners are also starting to show early signs of iPhone 12 production ramp up

On the economic impact of COVID-19, Huberty notes that Apple's retail reopening are nearing a new high since the pandemic, while consumer electronics demand continues to improve globally — an important trend for Apple.

Huberty is raising her 12-month AAPL price target to $136, up from $130. That's based on a 5.9x enterprise value-to-sales multiple on Apple's product business and a 10.5x EV/Sales multiple on Apple's Services business. That results in a 6.7x EV/Sales multiple for 2021, and a target 33.3x price-to-earnings multiple for that year.

A bull case, in Huberty's view, would result if Apple iPhone shipments hit 240 million units in 2021; if Services grew 16% year-over-year; and if Apple's total product revenue growth hit 31%. The bank's bull case price target is set at $171.

Shares of AAPL are trading at $121.47 on Wednesday morning, up 0.38% in intra-day trading and down 1.19% since Apple's 10 a.m. keynote on Oct. 13.