Apple (AAPL) shares are heading higher after Morgan Stanley analyst Kathryn Huberty Tuesday morning upper her rating on the stock to Overweight from Equal Weight, lifting her price target to $180, from $105.
Huberty said the company has better long-term growth potential than the Street generally realizes. “iPhone is feeding earnings growth that the market is missing,” she writes in a research note. “We believe Apple is emerging as the clear leader in the battle over the mobile Internet. We size this as an incremental 4 billion installed base opportunity for Apple, 4x the installed base of PCs and 10x the installed base of MP3 players.”
Huberty says her survey work points to “iPhone-driven EPS upside over the next two years,” muting any margin or growth concerns in the iPod and Mac segments.
The Morgan Stanley analyst says the September 2009 quarter will be a “key inflection point.” She expects a price cut in the current generation iPhone to drive 50%-100% incremental unit demand: a $50 price cut should drive 50% growth, she says, and a $100 cut, a 100% increase. She also says 15%-plus of the current installed base typically upgrades to a new generation phone.
Huberty ups her calendar 2009 unit forecast by 42% to 24.8 million; for calendar 2010 she now sees 36.2 million phones, up 61%.
She lifts her FY September 2009 EPS estimate to $5.48, from $5.23; for FY 2010, she goes to $7.03 from $5.38; for FY 2011, $8.83, from $5.85.
AAPL Tuesday morning is up $2.47, or 2%, to $124.97.