Morgan Stanley raises AAPL to $164 on Q1 2021 results, says Q2 outlook is strong

Credit: Andrew O'Hara, AppleInsider

In a note to investors seen by AppleInsider, Morgan Stanley analyst Katy Huberty said that some of the highlights of Apple's Q1 2021 earnings report were "faster iPhone share gains, installed base growth, and services monetization."

Those factors, along with a refreshed product lineup and a continued remote education and learning environment, hint at strong double-digit growth over the next several quarters, Huberty said.

Other key metrics support an overall faster growth outlook in the long term. They include an acceleration in Apple's installed base growth — from 7% to 10% — and services monetization, as well as a recovery in China.

The analyst adds that Apple's gross margin of 39.8% was 160 basis points higher than she modeled. Guidance suggesting upcoming March quarter consistency and growing currency tailwinds contribute to her 6% bump to earnings-per-share.

"We believe Apple is focused on delivering consistent gross margin performance, and we view 39-40% as the right near- to medium-term margin range, a step function improvement from recent performance," Huberty wrote.

Looking ahead to the March quarter, Huberty says the outlook implies above seasonal growth for iPhone, iPad, and Mac. Services also outperformed during the December quarter, and even with below seasonal growth for hardware, Huberty says her services forecast has improved.

Taken together, Huberty now predicts Apple's revenue at $77 billion in the March quarter, an increase of 32% year-over-year.

The analyst has raised her 12-month AAPL price target to $164, up from $152. It's based on a sum-of-the-parts model with a 6x enterprise value-to-sales (EV/Sales) multiple on Apple's product business and a 13.1x EV/Sales multiple on Services. That results in an implied 7.5x target 2022 EV/Sales multiple and a 34x target enterprise-value to free-cash-flow multiple.

Shares of AAPL were priced at $140.26 on the NASDAQ Thursday, down 1.30% in intraday trading.