The Ratings Game: Apple’s record quarter could be even bigger than expected, says Morgan Stanley

Investors aren’t optimistic enough about Apple Inc.’s upcoming earnings report, according to a Morgan Stanley analyst.

While the consensus forecast models record holiday-quarter revenue of $102.5 billion for Apple
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+2.84%
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Morgan Stanley’s Katy Huberty has an even rosier view of how the company performed late last year.

She expects the company to post fiscal first-quarter revenue of $108.2 billion driven by strong iPhone 12 sales, and she boosted her price target on Apple’s stock to $152 from $144 ahead of next Wednesday’s report. Huberty also expects record earnings per share of $1.50, above the $1.41 that analysts surveyed by FactSet are projecting.

Apple shares are up 2.4% in Thursday morning trading.

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Huberty called the iPhone 12 “Apple’s most successful product launch in the last five years,” which she said likely set the company up for success in the holiday quarter and beyond. Consumers seem to be opting for higher-priced iPhone models with bigger and more expansion storage configurations, she wrote, a boon for margins.

She isn’t so concerned about potential weakness for the smaller iPhone 12 and iPhone 12 mini models, since she said those devices are more popular in international markets with more price-conscious consumers. Apple also looks poised to continue benefiting from challenges at China’s Huawei, she argued, as the rate of customers switching from Huawei to Apple is at a 15-month high.

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Other product categories could also be set up well amid the pandemic. “Sustained work and learn from home demand coupled with a strong holiday season give us confidence in our above consensus iPad, Mac and Wearables December-quarter forecast,” Huberty wrote. Though she’s slightly below the consensus forecast with her services projections, she sees opportunity for upside there as the App Store appeared to have another strong quarter. Her main concern on services is that AppleCare purchases are often tied to in-store shopping, which isn’t as prevalent given store closures and stay-home trends.

Apple shares have gained 16% over the past three months as the Dow Jones Industrial Average
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+0.22%

has advanced 11%.

 
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