Top Apple analyst is staying positive but lowers outlook on valuation concerns

Published Tue, Apr 6 20218:08 AM EDTUpdated Tue, Apr 6 202111:33 AM EDT

Apple's services business is growing but the stock's valuation is getting offset by multiple compression in some of its high-growth peers, according to Morgan Stanley. The Wall Street firm's Apple analyst Katy Huberty — ranked No. 1 analyst in 2020 by Institutional Investor for IT hardware & electronics manufacturing services — raised her services revenue estimates for Apple. But she lowered her 12-month price target to $156 from $164 on peer multiple compression, or the likelihood that valuations would start to fall across the industry. Huberty — who stuck with her outperform rating on Apple — raised her already above-Street 2021 and 2022 services revenue estimates by 3% and 5%, respectively, following strong March quarter app store results. "However, multiple compression over the last 2 months, primarily at Apple's higher growth Services peers, more than offsets our higher revenue and earnings estimates, driving our new sum-of-the-parts based price target to $156," Huberty told clients. Shares of Apple are down 5% this year. The technology giant is down 13% since its last earnings report, while the S & P 500 is down just 7% since then. However, preliminary data shows App Store revenue grew 28% year over year in March, keeping Morgan Stanley bullish on the stock. Morgan Stanley's $156 per share price target still implies about a 23% rally for Apple over the next 12 months, based on the closing price of $125.90 per share Monday. "We believe positive earnings revisions into what we expect to be a strong F2Q earnings report later this month will drive a return to outperformance, keeping us Overweight," Huberty said. Huberty now expects service revenue to accelerate by 6 points to 22% year over year in 2021 (up from 19%). The new services revenue estimates push Morgan Stanley's 2021 and 2022 revenue estimates 1% higher and its 2021 and 2022 earnings estimates 1% and 3% higher, respectively. Apple is well-liked on Wall Street. Of the 43 analysts who cover the tech giant, 31 have a buy rating, according to FactSet. Nine analysts have a hold rating and three analysts recommend selling the stock. Shares of Apple were flat in premarket trading Tuesday. — with reporting from CNBC's Michael Bloom.

Apple iPhone 5G

Source: Apple Inc.

Apple's services business is growing but the stock's valuation is getting offset by multiple compression in some of its high-growth peers, according to Morgan Stanley.