Many Apple (NASDAQ:AAPL) investors have doubts about the company’s ability to keep high margins in a commoditized smartphone market as a way of regaining its trillion-dollar market cap status. On Jan. 3, Apple’s stock bottom fell out with the ticker printing a 52-week low of $142 per share. The plunge came after Apple CEO Tim Cook warned investors that Cupertino would fall notably short of its guidance for the first in time in 16 years. While AAPL has since climbed back – trading at $170.50 as of 11:09 am ET – many investors remain skeptical about the stock.
Morgan Stanley (NYSE:MS), however, disagrees.
In a research note, reported on by CNBC, the bank, after mentioning the tech giant’s “better than feared” March guidance, predicted that Apple shares could jump 27% to $211 this year based on the strength of the services division. Analyst Katy Huberty said a slew of new services launching in 2019, including Apple’s plans to launch a “media bundle”, would be a major driver for the stock and prove that there is life beyond the iPhone.
Huberty estimated that the “media bundle”, comprised of music, TV streaming and a Texture news subscription, could add 2 percentage points annually to Apple’s services revenue through 2025, “helping to drive a 5 percent revenue and 12 percent earnings per share (EPS) annual growth rate through 2023”.
Huberty also believes Apple’s stock could gain value by an expansion of its payments and advertising business and an increase in share buybacks.
“After repurchasing $8.8 billion of stock in the December quarter, below the prior $20 billion run-rate, we see a more active buyback program helping re-rate shares, as investors better understand the stabilization path for iPhone and impact of new services,” Huberty wrote.
On Tuesday, Apple announced its earnings for the first quarter of 2019. The tech giant said total revenues came in at $84.3 billion, including $51.98 billion in iPhone sales. While iPhone revenue was down by 15%, services revenues jumped 19%, giving investors reasons to believe that Cupertino is not a one-trick pony company but rather a tech juggernaut with plenty of innovative products in store.