Shares of Apple (AAPL) are on the rise on Tuesday after Morgan Stanley analyst Katy Huberty raised her price target on the stock to a Street-high $200. While the analyst is cautious on the IT Hardware space entering 2022, she thinks Apple should benefit from a "flight to quality," especially as upside from new product categories gets priced in as Apple approaches the launch of an Augmented Reality/Virtual Reality product over the next year.
VIRTUAL REALITY BOOST: Morgan Stanley analyst Katy Huberty raised the firm's price target on Apple to $200 from $164, while keeping an Overweight rating on the shares. The analyst is cautious on IT Hardware generally entering 2022, but thinks Apple should benefit from a "flight to quality," especially as upside from new product categories gets priced in as Apple approaches the launch of an AR/VR product over the next year. Apple is working on products to address two significantly large markets – AR/VR and Autonomous Vehicles – and "as we get closer to these products becoming a reality, we believe valuation would need to reflect the optionality of these future opportunities," Huberty contended.
While AR/VR technology has captured greater investor attention in recent weeks following Facebook's (FB) rebranding to Meta (FB; MVRS), the analyst would note that Apple has been methodically developing AR/VR technology for years. In fact, Apple's AR/VR patent quality ranks among the top of technology vendors today, and according to a recent B2C Harris survey, 35% of respondents prefer to buy an AR/VR device from Apple, significantly ahead of the second-place vendor Google (GOOG; GOOGL), she added. Furthermore, in conversations with venture-backed AR/VR companies, the consensus view is that the real catalyst for mass market AR/VR adoption will come when Apple enters the market, the analyst said.
In the near-term, iPhone supply and App Store are surprising to the upside and drive her December quarter estimates higher, Huberty added. While upward trending COVID cases are worth monitoring given they could create new production bottlenecks, the analyst views supply upside as a driver of better December quarter iPhone results. Based on the latest disclosures from Sensor Tower, she also estimates App Store net revenue grew 14% year-over-year in the month of November, a 1.6 point deceleration in year-over-year growth from October, off a 1.3 point more difficult year-over-year compare. Quarter to date, Huberty estimates App Store net revenue is up 15.2% year-over-year, meaningfully outpacing her +7.1% year-over-year forecast. This implies that year-over-year App Store net revenue growth needs to outperform 9% year-over-year declines in the month of December to meet her quarterly forecast, which she sees as "highly likely."
PRICE ACTION: In Tuesday morning trading, shares of Apple have gained about 3.5% to $171.09.
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