Morgan Stanley: Apple Lowered iPhone And Watch Entry Price To Attract New Users

Morgan Stanley issued a note on Apple Inc. AAPL after the company announced pricing for its new entry level iPhone SE that came in $50 below expectations. Analysts at Morgan Stanley rate Apple as Overweight with a $135 price target.

Analysts Katy Huberty and Jerry Liu wrote, "Apple lowered the entry price for iPhone and Watch by $50 which should attract new users...in emerging markets while keeping gross margins stable. iPhone demand stronger than we expected in March quarter and SE should help in June quarter."

Related Link: UBS Apple iPhone Monitor Is Bullish, Says SE Should Push Upgrades

Morgan Stanley gave two reasons why Apple can continue to drive value for shareholders in 2016.

1. Entry level pricing for iPhone SE

Morgan Stanley noted that while demand remains strong for Apple's flagship iPhone by offering a discounted model the company can attract a wider user base, especially in emerging markets where consumers are more price sensitive. Furthermore, because the iPhone SE shares components with other iPhone models, gross margins may remain strong even with the decrease in pricing.

2. Expansion into health and home automation

Morgan Stanley believes Apple has the opportunity to continue to develop its health and home platform, especially with applications paired with iPhones and Apple Watches. Apple also has the opportunity to develop accessories for its devices, which are typically high margin items and can strengthen the company's bottom line.