Morgan Stanley pares AAPL target slightly to $177

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Ahead of Apple's earnings call on October 27, Morgan Stanley believes Apple will beat Wall Street's expectations for the September quarter, although it very slightly lowered its price target for Apple's stock.

In a note to investors seen by AppleInsider, analysts at Morgan Stanley have a cautious view of Apple's financial performance. However, they expect the company to report revenue growth.

Erik Woodring forecasts $90.1 billion in revenue for Apple's September quarter. The estimage is 2% higher than Wall Street's forecast of $88.4 billion, and if accurate, would be record-breaking for the quarter.

As the year draws to a close, Woodring predicts $133.7 billion in revenue in the December quarter. This too is more than Wall Street expects, coming in at 4% higher than consensus.

The combination of the iPhone, iPad, and Mac will likely be the primary factors driving Apple's growth. As of October 18, the iPhone 14 Pro and iPhone 14 Pro Max lead times are 26.5 days.

Morgan Stanley predicts 51.1 million iPhone shipments in the September quarter with an average sale price of $838, which may lead to $43 billion in iPhone revenue.

Revenue for the iPad is predicted to be flat year-over-year at $8.3 billion and approximately 16 million shipments, while the Mac could see revenue of $1.04 billion, up 14% year-over-year. Mac shipments are forecast at eight million units in the September quarter.

The analysts forecast a below-seasonal September quarter for Wearables at +7% quarter-over-quarter, less than the +15% figure for averaged seasonality in the past five years. The new Apple Watch Series 8, Apple Watch Ultra, and AirPods Pro may not be enough to drive revenue.

Finally, Woodring predicts revenue of $19.7 billion for Apple Services. These factors, along with Apple's 14-week quarter in its December quarter, will drive an acceleration in year-over-year revenue growth for Apple's Services business, Woodring believes.

Morgan Stanley has trimmed its price target for AAPL stock to $177, down from $180 in July 2022.

Lower performance from Wearables and Services may be responsible for the price target. Additionally, the note cites an approximately 2% year-over-year decline for the App Store, which Morgan Stanley attributes to a decline in revenue from games.

The investment bank bases the price target on a 6.2x enterprise value-to-sales (EV/Sales) multiple on Apple's Product business and 6.4x on Services. The figure implies a 28.0x target price-to-earnings multiple.

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6 Comments

lkrupp

said about 1 year ago

JP234 said:

"The combination of the iPhone, iPad, and Mac will likely be the primary factors driving Apple's growth. As of October 18, the iPhone 14 Pro and iPhone 14 Pro Max lead times are 26.5 days."

I'd guess the services division will be the primary factor driving Apple's growth. At this point, the vast majority of Apple users are replacing existing models, not buying an iPhone/iPad/Mac for the first time. And first time buyers are what drives growth.

And what crystal ball told you that?

mpantone

said about 1 year ago

lkrupp said:

JP234 said:

"The combination of the iPhone, iPad, and Mac will likely be the primary factors driving Apple's growth. As of October 18, the iPhone 14 Pro and iPhone 14 Pro Max lead times are 26.5 days."

I'd guess the services division will be the primary factor driving Apple's growth. At this point, the vast majority of Apple users are replacing existing models, not buying an iPhone/iPad/Mac for the first time. And first time buyers are what drives growth.

And what crystal ball told you that?

No one has a crystal ball. It's just speculation on JP234's part.

Even Kathryn Huberty at Morgan Stanley doesn't have a crystal ball.

Stabitha_Christie

said about 1 year ago

JP234 said:

lkrupp said:

JP234 said:

"The combination of the iPhone, iPad, and Mac will likely be the primary factors driving Apple's growth. As of October 18, the iPhone 14 Pro and iPhone 14 Pro Max lead times are 26.5 days."

I'd guess the services division will be the primary factor driving Apple's growth. At this point, the vast majority of Apple users are replacing existing models, not buying an iPhone/iPad/Mac for the first time. And first time buyers are what drives growth.

And what crystal ball told you that?

Good question. But it's not magic, it's logic. The global cell phone market is pretty well saturated with iPhones. The only way to achieve revenue GROWTH would be either sell to new customers or raise prices. Since there are few new customers, that leaves price increases. Given the competition, that's not a good path. Not for phones, tablets or Macs.

The Apple universe of services has not even come close to market saturation among Apple users, and is therefore a prime source of NEW revenue, meaning growth. In addition, the gross margin on services is MUCH higher than on hardware, making it an attractive area for new services beyond what Apple currently offers.

Fair enough?

I think you can safely ignore them, they don’t seem to know what the word guess means.

I’m curious what you mean by the global market is well saturated with iPhones. The smartphone market is well saturated but globally Apple has less than 30% marketshare. To me that means there is plenty of room for growth. Same with the PC space. The PC market isn’t going to make huge leaps forward but Apple has less than 20% marketshare and thus room to grow. In the tablet space they are the most dominant but still have space to find new customers.

That said, I agree that services is the area with the most runway as there is plenty of room for new products to be brought into the Apple ecosystem. What they are doing in the financial services space is fascinating to me and I assume they are just getting started there.

muthuk_vanalingam

said about 1 year ago

Stabitha_Christie said:

JP234 said:

lkrupp said:

JP234 said:

"The combination of the iPhone, iPad, and Mac will likely be the primary factors driving Apple's growth. As of October 18, the iPhone 14 Pro and iPhone 14 Pro Max lead times are 26.5 days."

I'd guess the services division will be the primary factor driving Apple's growth. At this point, the vast majority of Apple users are replacing existing models, not buying an iPhone/iPad/Mac for the first time. And first time buyers are what drives growth.

And what crystal ball told you that?

Good question. But it's not magic, it's logic. The global cell phone market is pretty well saturated with iPhones. The only way to achieve revenue GROWTH would be either sell to new customers or raise prices. Since there are few new customers, that leaves price increases. Given the competition, that's not a good path. Not for phones, tablets or Macs.

The Apple universe of services has not even come close to market saturation among Apple users, and is therefore a prime source of NEW revenue, meaning growth. In addition, the gross margin on services is MUCH higher than on hardware, making it an attractive area for new services beyond what Apple currently offers.

Fair enough?

I’m curious what you mean by the global market is well saturated with iPhones. The smartphone market is well saturated but globally Apple has less than 30% marketshare. To me that means there is plenty of room for growth.

Apple doesn't target the smartphones with <$350 market, so you have to exclude that segment for Apple. In the >$350 smartphone market, Apple probably has 50%-60% marketshare and it is very hard to increase it further with so much competition. And there are plenty of iPhone models for the users to choose from as of now. I don't think there is any gaping hole in the iPhone lineup for Apple to add more iPhone(s) beyond what they are currently selling. The current iPhone lineup is near perfect in terms of offerings at various price points.

Stabitha_Christie

said about 1 year ago

JP234 said:

Stabitha_Christie said:

JP234 said:

lkrupp said:

JP234 said:

"The combination of the iPhone, iPad, and Mac will likely be the primary factors driving Apple's growth. As of October 18, the iPhone 14 Pro and iPhone 14 Pro Max lead times are 26.5 days."

I'd guess the services division will be the primary factor driving Apple's growth. At this point, the vast majority of Apple users are replacing existing models, not buying an iPhone/iPad/Mac for the first time. And first time buyers are what drives growth.

And what crystal ball told you that?

Good question. But it's not magic, it's logic. The global cell phone market is pretty well saturated with iPhones. The only way to achieve revenue GROWTH would be either sell to new customers or raise prices. Since there are few new customers, that leaves price increases. Given the competition, that's not a good path. Not for phones, tablets or Macs.

The Apple universe of services has not even come close to market saturation among Apple users, and is therefore a prime source of NEW revenue, meaning growth. In addition, the gross margin on services is MUCH higher than on hardware, making it an attractive area for new services beyond what Apple currently offers.

Fair enough?

I think you can safely ignore them, they don’t seem to know what the word guess means.
I’m curious what you mean by the global market is well saturated with iPhones. The smartphone market is well saturated but globally Apple has less than 30% marketshare. To me that means there is plenty of room for growth. Same with the PC space. The PC market isn’t going to make huge leaps forward but Apple has less than 20% marketshare and thus room to grow. In the tablet space they are the most dominant but still have space to find new customers.

That said, I agree that services is the area with the most runway as there is plenty of room for new products to be brought into the Apple ecosystem. What they are doing in the financial services space is fascinating to me and I assume they are just getting started there.

To grow into the existing hardware markets, Apple would have to get Windows/Android users to switch. That's not going to happen in significant numbers, due to the stranded costs. It's no longer a matter of just replacing a computer. If I have, for instance, a Dell desktop, an HP laptop, a Microsoft tablet, an Android phone and watch, that's going to be thousands of dollars for the hardware alone. Then there's the learning curve.
Nope, going forward, it's the services that will fuel growth. Existing Apple customers have barely tapped the available services, and more are coming all the time. I'm expecting the new Apple One subscription to take off like a rocket. It's a true bargain compared to assembling the pieces separately.

Great point about the financial services side, though. That's effectively a license to print money!

Data would suggest otherwise. Over the last few quarters 50% of Mac sales have been going to people switching to the platform. Or according to Apple that is the case and I have no reason to think they made that up. I don’t recall if they have offered the same detail for iPad and iPhone but the sunk costs there are far lower than a PC.