Apple stock has 5 underrated catalysts, says Morgan Stanley

Apple (AAPL) stock has five underappreciated catalysts that could propel it higher over the next 12 months, according to investment firm Morgan Stanley. This includes Apple’s first launch of a new product category in eight years.

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On Friday, Morgan Stanley analyst Erik Woodring reiterated his overweight or buy rating on Apple stock, calling it a “top pick.” He also raised his price target to 180 from 175.

Apple shares rose 2.7% to 149.89 in afternoon trading today.

“We see a catalyst-rich event path over the next 12 months that investors are underestimating,” Woodring said in a note to clients. Those catalysts include reaccelerating iPhone and services growth and improving gross profit margins. He also sees two major product launches and the potential launch of an iPhone subscription program.

Apple stock faces challenges in the near term

But Apple stock faces some challenges in the meantime, he said.

“In the near term, weaker consumer electronics spending, a challenging macro backdrop, FX (FX) headwinds, iPhone manufacturing shortages and ongoing Covid restrictions are headwinds that will likely result in Apple’s first full year revenue and EPS (earnings per share ) has been declining since 2019,” Woodring said.

Among the catalysts, Woodring sees Apple’s profit margins improving as FX market challenges ease.

“Perhaps what’s most underestimated by investors today is how strong Apple’s underlying gross margins are when adjusted for foreign exchange headwinds, which we estimate were 46% in the December quarter and likely nearly 47% in the March quarter.” will achieve,” he said.

iPhone 15, hands-on mixed reality headset

Apple’s iPhone 15 smartphone lineup this fall is likely to boost demand again in fiscal 2024, Woodring said. The company’s fiscal year 2023 ends on September 30th. IPhone unit sales are expected to fall 9% to 218 million units in fiscal 2023, he said.

Customer replacement cycles for the iPhone are expected to extend to a record 4.4 years by the end of the fiscal year. That should create a pent-up demand for the new smartphone models, said Woodring.

In addition to the iPhone 15, Apple is about to launch another major product with its alleged mixed reality headset. The new wearable device is intended to combine virtual and augmented reality.

“History shows that you want to own Apple stock 6-9 months ahead of major product launches, with Apple’s new AR/VR headset and the launch of the iPhone 15 both being key upcoming catalysts,” Woodring said. The mixed reality headset would be Apple’s first new hardware platform since the Apple Watch launched in April 2015.

Woodring thinks Apple will announce the headset this summer.

Apple stock in consolidation pattern

Finally, Woodring says he’s most excited about the potential launch of an iPhone hardware subscription service. It is rumored to happen this month or next, he said.

Apple stock has consolidated over the past 61 weeks, according to IBD MarketSmith charts. Apple stock has a below-average IBD Relative Strength Rating of 42 out of 99. The Relative Strength Rating shows how a stock’s price has performed relative to all other stocks over the past 52 weeks.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories about consumer technology, software and semiconductor stocks.

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