Next Apple iPhone 'Supercycle' Is About To Begin, Says Morgan Stanley

While the December quarter guidance issued by Apple Inc. AAPL missed the high buy-side expectations, Morgan Stanley’s Katy L. Huberty believes the return to iPhone unit growth and expanding iPhone ASPs, along with the consistent gross margin commentary “pave the way for investors to own AAPL ahead of the next iPhone supercycle.”

Huberty maintains an Overweight rating on the company, while raising the price target from $124 to $148.

Positive Expectations

“We see new form factor, better display, and longer battery life driving shorter iPhone replacement cycles in FY18 with double-digit revenue and EPS growth,” the analyst mentioned.

Longer term, Huberty believes an engaged installed base for the iPhone would drive services growth, which already beat the estimate with 24 percent growth year-on-year in September.

Related Link: On The Strength Of iPhone 7, Brean Lifts Apple's Price Target To $135

December Quarter Guidance

The analyst mentioned that Apple’s December quarter guidance suggests flat to a decline of 3 percent year-on-year in revenue, with flat to 4 percent growth in iPhone shipments — better than the investor expectations had been heading into the iPhone 7 launch, although missing the more recent buy-side expectations.

In addition, the company guided to year-on-year flat iPhone ASPs, implying robust Plus mix during the current cycle.

Huberty said, “[D]espite some concerns that gross margin could surprise negatively, the 50bps higher guide compared to September is very consistent with historical seasonality.”

At last check, Apple was down 2.89 percent in Wednesday's pre-market session at $114.80.

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