Morgan Stanley says they would be buyers of Apple (NASDAQ:AAPL) on incremental revenue and operating leverage. Firm believes the market is underestimating the likely success of iPhone. They're raising C2007 unit and revenue forecasts to better reflect iPhone interest levels.
EPS estimates for 2007 and 2008 increase to reflect higher unit estimates and a more favorable NAND pricing outlook. They also believe the market is underestimating potential operating leverage. While the firm sees positive leverage drivers across Apple's product segment, the iPhone alone increases scale (better pricing from suppliers), strengthens retail store leverage (increased velocity on fixed-cost base), and takes advantage of lower NAND pricing in the market. Rates AAPL Overweight with a $110 price target.
Expecting 8M units in 2007, up from 6M: MSCO is raising their iPhone unit estimates by 33% due to their survey. A survey of 2,500 US consumers found that more people are interested in buying an iPhone than the combined number of people who already own or are planning to buy a similar high-end device in the NTM (23% vs. 19%). Firm's new forecast could prove conservative if the above-mentioned catalysts play out. C2007 iPod estimate trends down (by 1.5M units) to consider a slightly higher cannibalization rate than previously forecast. C2007 Revenue and EPS increase $600M and $0.43, respectively.
Notablecalls: Considering MSCO's ests were already Street high, any positive revisions will be greeted by the market with a nice bump in share price. Actionable call alert!