Morgan Stanley Likes Apple's Summertime Outlook

• Apple Inc. AAPL shares are down 14 percent since December 14.
• Morgan Stanley’s Katy L. Huberty maintained an Overweight rating for the company, with a price target of $143.
• Initial indications point towards a better June quarter, suggesting that estimates and sentiment could be bottoming, Huberty stated.

The latest round of supplier forecast revisions indicate that Morgan Stanley’s March quarter estimate for iPhone builds may need to be reduced from the current 52M units. The Asia tech team has reduced the December quarter and March quarter builds from 77M to 72M and from 45M to 40M, respectively.

Analyst Katy Huberty said, however, that there is less unit risk for the remainder of the year, given the upcoming 4” iPhone launch in April and iPhone 7 launch in September. “Initial indications are for better than normal seasonality in the June quarter which suggests estimates and sentiment may be bottoming.”

The analyst added that suppliers are estimated to have overbuilt by 10M units in CY15, which puts upward pressure on reported iPhone sales relative to supplier production plans in the near term.

Citing the large user base for iPhone 6, which will be eligible to upgrade, Huberty commented that iPhone units could grow during iPhone 7 cycle. She added that 4” iPhone volumes could be around the 15M range. Assuming corporate average gross and operating margins, the new 4" iPhone could add $0.25-0.30 of annual EPS.