Morgan Stanley picks Apple for aggressive buyback, Watch margins and iPhone capacity
Morgan Stanley raised its earnings forecasts and reiterated its 'buy' recommendation on Apple, one of its 'best idea' stocks.
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The US bank highlighted the tech company's strong iPhone growth, still-strong margin guidance and likely "aggressive" share repurchase that could see Apple repurchase $8bn more than expected.
"We see a broadening portfolio of services and the Watch as drivers of a re-rating more in-line with technology platform peers," the US bank said, which would point to prices nearer 18 times forecast earnings, driving its price target to $166 from $160.
Monday night's results saw iPhone again take centre stage, with strong double-digit growth in most regions, led by a further surge into China.
Morgan Stanley is encouraged that the iPhone upgrade cycle still in the early in the innings, with Apple estimating 20% of iPhone users have upgraded to iPhone 6 and 6 Plus to date, implying around 425m total iPhone users.
As a result, the bank sees stable-to-growing iPhone units in full year 2016 compared to investor fears of iPhone declines.
Strong Apple Watch pre-orders suggest production is likely to accelerate in coming months, analysts believe.
The share repurchase plans mentioned along with results likely to "be aggressive", with management predicted to maintain its cadence of buying up stock quicker than expected.
In the last two years, Apple repurchased 35-108% more than the authorization implied each year suggesting that the company could repurchase $40bn of stock in the next 12 months - potentially adding $0.06-plus to EPS.