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Morgan Stanley is out positive on Apple (NASDAQ:AAPL) saying the company's operating leverage remains underappreciated by investors and is the main driver of firm's increased earnings forecast and price target.

MSCO believes Apple's operating margin will continue to improve from two factors:

1) Apple's operating expenses grow at 1/2 the rate of revenues. If this relationship holds going forward, every $1bn of incremental CY08 revenue drives 30 bps operating margin; and

2) Product sold through Apple's retail stores earns as much as 14 points incremental profit. All else equal, a 5 point increase in the mix of revenues through Apple stores adds 50 bps operating margin.

Firm's CY08 operating margin increases to 19.8% (from 16.7%) and CY08 EPS shifts to $5 (from $4.29). They continue to believe earnings and stock revisions are heavily weighted to the upside and think that even $7 in EPS may be doable in CY08. New tgt stands at $150. Maintains Overweight.

Notablecalls: New 52 wk high coming for AAPL today. Expect to see at least couple of points of immediate upside. Actionable call!

AAPL 1-yr chart

AAPL

Source: Apple to Hit New High Today: Expecting Immediate Upside