Apple value to hit $1 trillion in 1 year: Analyst
Apple will rise to $1 trillion in market value over the next 12 months, according to Morgan Stanley.
Here's why:
Analyst Katy Huberty, under her "bull case" scenario, predicts that Apple's (NASDAQ: AAPL) share price will rise to $190 over the next 12 months. With 5.8 million shares outstanding, that would push the company's worth to $1.11 trillion. Her official "base case" price forecast of $160 puts the market capitalization at $932 billion.
The reasoning behind these two cases is the increasing returns of Apple's ecosystem, which the company does not get credit for in terms of valuation. Huberty argues that Apple should trade at multiples similar to other top technology companies with best-in-class platforms, such as Facebook (NASDAQ: FB) and Google (NASDAQ: GOOGL).
"A strong platform becomes a virtuous cycle, as many users buy multiple devices ('halo effect') and more software and services, which in turn attracts more developers, merchants and partners," wrote Huberty in a 32-page note to clients Monday. "This improves the whole ecosystem, which helps Apple attract and lock-in new users."
The analyst rates the stock "overweight" and it is one of the firm's so called Best Ideas. Her bullish case price target is higher than any of the forecasts by the 51 analysts that rate Apple, according to FactSet. The official forecast of $160 is second highest on the Street. Note that Apple is close to exceeding the average 12-month price forecast of $134.32.
"Our new base case price target increases from $133 to $160. This assumes 18 times (previously 15 times) price to CY15 earnings of $8.86 (unchanged), which is in-line with large-cap technology platforms such as Microsoft (NASDAQ: MSFT), Google, Facebook and Oracle (NYSE: ORCL). Our bull case increases from $150 to $190. This assumes 19 times (previously 18 times)."
A 1 percent rise in Apple midmorning Monday, in part because of this bullish note, pushed the Nasdaq composite index over 5,000 for the first time in 15 years.
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The most interesting part of the opus is when the analyst talks about Apple taking not more market share, but "time" share.
"Apple products and services address user needs in roughly 33 percent of their day, but that can increase to 75 percent. Our analysis of how users spend their time suggests cars, TVs and health are significant opportunities that Apple will attack in coming years," states the note.
Huberty says the Apple Watch will be the near-term catalyst for the company taking over a greater and greater portion of our day, including sleep. A survey by Morgan Stanley and AlphaWise shows that "purchase intention" for the Watch is greater than the levels seen before the iPhone and iPad launches.
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Morgan Stanley's bear case price target of $103 a share, which is 21 percent lower from here, states the risk that iPhone demand takes a dive in the second half of this year. It also says there is a risk the strong demand in wearables, as indicated by that survey, never comes to fruition.
The report also goes in-depth into Apple's big opportunity with cars because soon automakers will realize that good technology could increase the value of an automobile (infamously depreciating assets) by as much as 60 percent.
"Our U.S. autos team believes the number of traditional car companies could shrink from about 35 to five as the innovation, technology and therefore value of a car shift towards software and content in the future, in an autonomous, electric world."
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