Morgan Stanley Says Apple's Valuation 'Doesn't Reflect Platform Multiple,' Suggests Valuation Of $160

In a report published Monday, Morgan Stanley analyst Katy Huberty stated that shares of Apple Inc. AAPL are undervalued and that its current valuation "doesn't reflect platform multiple."

"Apple has the world's most valuable technology platform," Huberty wrote. "Its users are the most loyal, and are willing to often pay a premium for the best user experience. They spend more, as developers and merchants generate at least two times as much revenue on iOS versus Android."

Huberty added that a strong platform becomes a "virtuous cycle" as many users buy multiple devices (known as the "halo effect") which improves the entire Apple ecosystem while attracting and locking in new users.

Huberty's analysis showed that Apple products and services address user needs in only 33 percent of their day, a figure that increase to 75 percent. TVs and health are "significant opportunities" Apple can attack in coming years while the Car market could become Apple's "fourth screen," after PCs/tablets, smartphones and TVs.

Huberty argued that Apple is in a position to quadruple its total addressable market to $3.4 trillion by 2020. As such, shares are undervalued at its current multiple.

"Our new Base Case price target increases from $133 to $160. This assumes 18x (previously 15x) price to CY15 earnings of $8.86 (unchanged), which is in-line with large-cap technology platforms such as Microsoft, Google, Facebook and Oracle," Huberty calculated. "Our Bull Case increases from $150 to $190.This assumes 19x (previously 18x) price to CY15 earnings of $10 (also unchanged), which is in-line with large-cap platform companies across industries. We note that Apple margins, earnings growth, and yield are on par to better than platform peers."