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Seth Golden posted an update 4 years, 11 months ago
Morgan Stanley on Apple price target raising:
1) The market view is that with the launch of TV+, AAPL is entering a new, more capital intensive market with a low probability of generating a positive return for shareholders. Based on Katy’s analysis of the accounting treatment and economics behind AAPL’s video service, she disagrees, and sees Apple TV+ boosting Services revenue growth by two points in FY20, adding one point, on average, to AAPL EPS in FY21 and beyond, and contributing an incremental $3 per share to AAPL’s valuation.2) She argues that the near term (FY20) accounting impact from a) the bundling of a free year of Apple TV+ with device sales and b) spending on video content is less than the market expects. Katy assumes a 20bps headwind to FY20 revenue and a 1.9% headwind to FY20 EPS, with Apple TV+ becoming accretive in FY21 and beyond.
3) Her new $289 price target (20% upside; up from $247 previously) is derived from a sum-of-the-parts analysis now based on FY21 estimates rather than FY20, as she believes FY21 estimates better capture the sustainable earnings power as new Services, like TV+, ramp and iPhone returns to growth as replacement cycles peak and 5G drives device upgrades. Note that her new $407 bull case (69% upside; up from $339 previously) reflects a more meaningful ramp in Apple TV+ users and a re-accelerating iPhone replacement cycle to 3.5 years (from closer to 4 years today).
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