Institutional AAPL ownership plunges, analyst still forecasts solid growth

In a note to investors seen by AppleInsider, lead analyst Katy Huberty writes that Apple's institutional dropped 58 basis points to 4.9% quarter-over-quarter existing the March quarter. Institutional ownership refers to large-scale organizations buying and holding shares of a

company.

According to Huberty, this marks the largest sequential decrease in institutional ownership since 2013. She notes that active ownership is still up 50 basis points year-over-year, however.

Additionally, Apple's weighting in the S&P 500 index dropped 96 basis points quarter-over-quarter, the largest sequential decrease since 2009 — as far back as Morgan Stanley has data.

The spread between Apple's S&P 500 weighting and institutional ownership contracted about 38 basis points quarter-over-quarter to 0.86%. Huberty says that implies investors are still underweight on Apple shares, though the gap has narrowed by about 30% since the last quarter of 2020.

Huberty writes that AAPL shares have underperformed the S&P 500 and Morgan Stanley's own coverage by about 16% and 26%, respectively.

She says this underperformance is likely attributable to investors sell after the Q1 2021 earnings beat, skepticism that Apple can show robust growth during a period of touch comps, and the rotation from growth to value.

The analyst still believes that Apple is well-positioned to benefit from four upcoming market trends, including the adoption of 5G technology, a continued work-from-home and remote education environment, the proliferation of wearables, and increasing monetization and growth of its digital content and services.

Demand for Apple products in five of the company's top markets is also accelerating because of expanded financing, installment, and trade-in options. This is also leading to users upgrading to devices with a higher average selling price (ASP).

The analyst says this combination of factors, alongside 300 basis points of gross margin expansion, 470 basis points of operating margin expansion, and more than $80 billion of stock buybacks, leads her to believe that Apple will see 29% revenue growth and 57% earnings-per-share (EPS) growth in 2021.

In the longer-term, a growing device installed base, faster Services monetization, and expansion into new and adjacent markets could sustain Apple growth in the 10% range over the next five years. That's 300 basis points ahead of Wall Street's 7% estimated compound annual growth rate (CAGR).

Huberty maintains her 12-month AAPL price target of $161. It's 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.

AAPL was priced at $127.34 a share on Monday morning, up 1.54% in intraday trading.

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