Apple (NASDAQ: AAPL) shares have been on fire this year, delivering a 66% return year-to-date. And one Morgan Stanley analyst says the stock still has plenty of room to run.
Katy Huberty, managing director and head of North American hardware tech research at Morgan Stanley, said at the firm’s APAC Summit this week that Apple shares are currently “under owned” by investors.
“Even the top 100… holders of Apple have a position that’s less than the S&P 500 weighting,” Huberty said. And “we still think the stock has room to run.”
Right now, Morgan Stanley has a price target for AAPL of $296, indicating possible upside of 13% from the current price.
Huberty says there are several possible catalysts that could push the stock higher.
First, the iPhone 11 appears to be exceeding Apple’s sales expectations, and next year’s models should deliver strong sales as they will be the first iPhones to offer 5G support. After a couple of years of waning demand for Apple’s best-selling product, stronger sales for the handheld device should boost the stock.
Second, the tech giant is committed to quarterly share buybacks. And third, Apple hasn’t seen its bottom line as hurt as much by the U.S.-China trade war as many expected.
“What’s interesting is the company’s margins have been flat to up since tariffs went into effect … in September,” Huberty said. “In the December quarter, again, gross margin guidance was better than expected,” and Apple has likely “done a lot of work with suppliers” to shift production of some of its products away from China as trade tensions have continued to escalate.
But Huberty isn’t the only analyst bullish on Apple. A slew of analysts have updated their price targets for the stock recently as AAPL shares have blown past previously set targets.
RBC Capital Markets analyst Robert Muller initiated coverage of the stock last week, rating it an Outperform and giving it a $295 price target.
“With arguably the world’s most popular consumer product providing a stable foundation, AAPL has avenues for deeper integration into its customers’ lives and the balance sheet strength to return significant cash flow to shareholders,” Muller wrote in a note to clients.
Muller also see next year’s iPhone models as a catalyst for the stock and said that the launch of 5G iPhone models could create a “super upgrade cycle.”
“For a company with a considerable track record of innovation, we view future products/services as likely and valuable, whether they be connected home devices or something yet to be dreamed up,” Muller added.
One of those innovations is in Apple’s wearables business, which includes the Apple Watch and AirPods among other products. And Evercore ISI analyst Amit Daryanani said earlier this week that the company’s wearables unit could be a $60 billion-plus business for Apple by 2023, which he says will add $2 a share to earnings per share.
Daryanani sees more than 20% growth in Apple’s wearables business, which will drive more customers to the company’s iOS ecosystem, “accelerating growth even if iPhone sales remain flat,” he wrote.
The Evercore analyst also rates AAPL shares an Outperform and Daryanani boosted his price target from $262 to $275.
Wedbush’s Daniel Ives bumped his target up to $325 from $300, marking the Street-high estimate and suggesting 24% upside ahead.
Ives wrote that Apple is “still in the midst of a renaissance of iPhone growth heading into 2020 that will further catalyze the stock higher as it gets re-rated from the Street.”
“The combination of a ‘super cycle’ demand driver between iPhone 11/5G lineup of smartphones and a robust ~$60 billion services platform by FY 2021 will be the linchpins of the Apple growth story and stronger fundamental outlook looking ahead and thus command a higher multiple from current levels in our opinion,” Ives said.
Ives added that the overall demand for the iPhone 11 is trending “much better” than expected, and that “any trade deal with China would remove an overhang on this name.”
And finally, Piper Jaffray’s Michael Olson recently reiterated his Overweight rating for AAPL shares and raised his price target to $290 from $270.
“While 5G is on the horizon and this year’s iPhone lineup did not include any dramatic improvements, our survey of domestic iPhone users suggests upgrade rates are up slightly year-over-year,” Olson wrote in a note. “Looking into the coming year, Apple is in the midst of a perfect storm, with current iPhone performing at-or-above plan, non-iPhone (especially wearables and services) trending better than expected through the end of FY 2019 and growing anticipation for 5G iPhones that will be coming late in the fiscal year.”