Healthy iPhone, iPad demand runs counter to Apple stock performance, analyst says

In a note to investors seen by AppleInsider, lead analyst Katy Huberty writes that supply chain data analysis suggests that iPhone demand hasn't slowed. As a result, there's potential upside to Morgan Stanley's June quarter iPhone forecast.

The bank's Asia supply chain team recently raised its June quarter iPhone build forecast to 44.5 million units, up from 43 million, based on better-than-expected demand for the iPhone 12 Pro Max.

Additionally, Apple supply chain partners in Taiwan reported sales increase of 13% year-over-yea in April. That marks the seventh consecutive month of yearly revenue growth after the launch of the iPhone 12 lineup, Huberty writes.

Currently, the analyst is forecasting 41 million iPhone units in the June quarter, given the historical relationship between iPhone build numbers and shipments.

For Apple's iPad, Morgan Stanley's supply chain team raised its build forecast to 16.8 million, up from 16 million. Huberty believes that Apple will ship around 13.5 million iPads, given the supply constraints currently plaguing the industry.

Data in China also paints a positive picture for Apple going forward. Huberty highlights the fact that the company reported its eighth consecutive month of year-over-year installed base gains in China in April. While smartphone sales in China were weak in April, Huberty believes that apple outperformed domestic vendors by about eight percentage points.

Although Huberty didn't go into detail about Apple's notebook business, she notes that PC demand remains robust, PC and notebook lead times and extending, and there appears to be bullish PC spending intention data. Huberty believes that more analysis is needed to determine whether Apple's month-over-month down-tick in notebook assembly is because of tight component supply or weakening demand.

The analyst notes that investors are still concerned about App Store growth on the basis of difficult pandemic compares and are currently waiting for September guidance to get a feel for normalized demand.

"While we need to watch App Store growth over the coming months, we believe Apple's recent under-performance is likely overdone ... given the improving iPhone and iPad data points," Huberty writes.

Huberty maintains her 12-month AAPL price target of $161, which is based on a sum-of-the-parts analysis by applying a 5.7x enterprise value-to-sales (EV/Sales) multiple on Apple's product business and an 11.8x EV/Sales multiple on Services. That results in an implied 7x target EV/Sales multiple for 2022 and a 31x price-to-earnings multiple.

Shares of AAPL were priced at $123.82 in intra-day trading on Tuesday, down 0.83% in a trading day seeing declines in big tech in general.

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