Apple (AAPL) stock has five underappreciated catalysts that could drive it higher over the next 12 months, according to investment firm Morgan Stanley. They include Apple’s first new product category launch in eight years.
On Friday, Morgan Stanley analyst Erik Woodring reiterated his overweight, or buy, rating on Apple stock, calling it a “top pick.” He also raised his price target to 180 from 175.
In afternoon trades on the stock market today, Apple stock climbed 2.7% to 149.89.
“We see a catalyst-rich event path over the next 12 months that is underappreciated by investors,” Woodring said in a note to clients. Those catalysts include reaccelerating iPhone and services growth and improving gross profit margins. He also sees two major product launches and the possible introduction of an iPhone subscription program.
Apple Stock Faces Challenges Near Term
But Apple stock has some challenges to overcome in the meantime, he said.
“In the near term, weaker consumer electronics spending, a challenging macro backdrop, FX (foreign exchange) headwinds, iPhone production shortages, and lingering Covid restrictions are headwinds that are likely to result in Apple’s first fiscal year of revenue and EPS (earnings per share) declines since 2019,” Woodring said.
Among the catalysts, Woodring sees Apple’s profit margins improving as foreign-exchange challenges ease.
“Perhaps what is most underappreciated by investors today is just how strong Apple’s underlying gross margins are when adjusting for FX headwinds, which we estimate were 46% in the December quarter and are likely to reach nearly 47% in the March quarter,” he said.
IPhone 15, Mixed-Reality Headset On Tap
Apple’s iPhone 15 smartphone lineup this fall should fuel a reacceleration of demand in fiscal 2024, Woodring said. The company’s fiscal 2023 ends Sept. 30. IPhone unit sales are forecast to fall 9% to 218 million units in fiscal 2023, he said.
Customer replacement cycles for the iPhone are likely to stretch to a record 4.4 years by the end of the fiscal year. That should create pent-up demand for the…