Apple (AAPL) stocks have five underappreciated catalysts that could propel them higher in the next 12 months, according to investment firm Morgan Stanley. They include the first launch of a new category of Apple products in eight years.
x
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.
In afternoon stock market trading today, Apple shares rose 2.7% to 149.89.
“We see a catalyst-rich event path over the next 12 months that investors underestimate,” 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 possible introduction of an iPhone subscription program.
Apple shares face short-term challenges
But Apple shares have some challenges to overcome in the meantime, he said.
“In the near term, weaker consumer electronics spending, a challenging macro backdrop, FX (foreign exchange) headwinds, iPhone production shortages, and persistent Covid restrictions are headwinds likely to result in the first Apple’s fiscal year of revenue and EPS (earnings per year. share) decreases from 2019,” Woodring said.
Among the catalysts, Woodring sees Apple’s profit margins improving as currency challenges ease.
“Perhaps what investors underestimate the most today is how strong Apple’s underlying gross margins are when adjusting for FX headwinds, which we estimate was 46% in the December quarter and is likely to hit nearly 47%.” % in the March quarter,” he said. .
iPhone 15, mixed reality headsets available
Apple’s iPhone 15 lineup of smartphones this fall should fuel a reacceleration in demand in fiscal 2024, Woodring said. The company’s fiscal 2023 year ends on September 30. iPhone unit sales are expected to fall 9% to 218 million units in fiscal 2023, he said.
Customer replacement cycles for the iPhone are likely to stretch to a record 4.4 years by the end of the fiscal year. That should create pent-up demand for new smartphone models, Woodring said.
In addition to the iPhone 15, Apple has another major product launch pending with its rumored mixed reality headset. The new wearable device is likely to combine virtual and augmented reality.
“History shows you want to own Apple shares 6 to 9 months before key product launches, with Apple’s new AR/VR headset and the launch of the iPhone 15 both key catalysts coming,” Woodring said. The mixed reality headset would be Apple’s first new hardware platform since the Apple Watch debuted in April 2015.
Woodring believes that Apple will announce the headphones this summer.
Apple shares in consolidation pattern
Finally, Woodring says he’s very excited about the potential launch of a hardware subscription service for the iPhone. That is rumored to happen this month or next, he said.
Apple shares have been consolidating for 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 performance compares to all other stocks over the past 52 weeks.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
YOU MAY ALSO LIKE:
Autonomous trucks go full speed ahead, but big robotic trucks face a bumpy road
Dell Beats Estimates on Solid Infrastructure Hardware Sales
Tesla comments on tank silicon carbide chipmakers Onsemi, STMicro, Wolfspeed
See stocks on the leader list near a buy point
Find winning stocks with MarketSmith pattern recognition and custom screens