Two Firms Out Positive on Apple

Feb. 26, 2008 7:45 AM ETApple Inc. (AAPL)14 Comments
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Morgan Stanley is out positive on Apple (NASDAQ:AAPL) this AM saying they continue to believe new product announcements and margin expansion will drive AAPL shares higher in 2008. In the near-term, unit expectations need to come down as the product line transitions to higher ASP offerings (iPhone, iPod Touch) But, strong Mac shipments and Apple’s ability to leverage favorable component pricing, leave their CY08 above consensus EPS unchanged.

Beyond industry checks, the firm would point to a 34% YoY increase in R&D and 170% YoY increase in Steve Jobs’ airplane expense in the December quarter as signs Apple is preparing for meaningful product launches.

Apple’s 10-Q shows surprising margin leverage outside the US and a comparison to other retail brands confirms that International expansion tends to be a positive influence on revenue growth, operating margins and valuation. In the near-term, they highlight favorable component pricing that will put upward pressure on gross margin.

Notes AAPL shares already trade at firm's 12-month bear case scenario and they like the risk/reward here (12% downside/55% upside to $185 target).

Reiterates Overweight.

Piper Jaffray's Gene Muster is also out positive on Apple (NASDAQ:AAPL) this morning noting that while it is way too early to make a definitive call on March qtr iPod units, they have analyzed the first month of NPD data (Jan.) for the quarter and found that it suggests iPod units of 9.5m-10.3m.

Street consensus for March quarter iPods is 10.8m, representing a 2% y/y increase;the midpoint of the 9.5m-10.3m range suggests a 6% y/y decline.

Firm sees this data point as a slight positive, given recent Street chatter of a very weak iPod number for the quarter, and notes that the monthly contribution they have factored in for Feb. & March may be prove to conservative given the iPod shuffle price cut on 2/19, leading to a more back-end-loaded qtr for iPod units.

Reiterates Outperform, Alpha List status and $250 target.

Notablecalls: Can't believe I was actually right, calling it a short last Thursday following disappointing data from iSuppli.

Yet, now I think it's all priced in here @ around $120. I think people are just looking for a reason to buy this stock and MSCO may have given them the reason to do so.

Now we have 2 positive/supportive calls on AAPL this morning. My conviction regarding the near term bounce thesis grows. I think the slowdown in iPod's has been fully priced in here.

Should this be Actionable? In a way, yes.

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