Apple (AAPL) Price Target Lifted to $160 at Morgan Stanley

(Updated - March 2, 2015 11:17 AM EST)

Morgan Stanley analyst Katy Huberty reiterated an Overweight rating and boosted her price target on Apple (NASDAQ: AAPL) to $160.00 (from $133.00), calling it a tech platform company that should trade more in-line with peers.

"Apple's ability to charge a premium, grow recurring revenue, and accelerate the pace of category expansion argue for a re-rating more in-line with platform companies, at 18-19x," Huberty said.

The analyst proclaims that Apple has the most valuable technology platform in the world. "Its users are the most loyal, and are willing to often pay a premium for the best user experience," she states. "They spend more, as developers and merchants generate at least 2x as much revenue on iOS vs. Android. A strong platform becomes a virtuous cycle, as many users buy multiple devices (“halo effect”) and more software and services, which in turn attracts more developers, merchants and partners. This improves the whole ecosystem, which helps Apple attract and lock-in new users."

Apple's products and services current address user needs in roughly 33% of their day. However, the analyst said this can increase to 75%. "Our analysis of how users spend their time suggests cars, TVs and health are significant opportunities that Apple will attack in coming years," Huberty said. "Americans over 15 years old on average spend 5% of their time traveling, most in private cars in our estimate. As autonomous cars come to market in the next 5 years, according to our autos analyst Adam Jonas, this time will become available to consume and create content and services. Cars could become the fourth screen, after PCs/tablets, smartphones and TVs. Similarly, Americans spend 12% of their time watching TV, and another 40% sleeping and 7% eating and exercising, activities which can be addressed with TV and wearable products."

The analyst sees the potential for Apple to quadruple its total addressable market (TAM) over the next five years. "While the largest opportunities - TV and Autos - are further out, we see Apple expanding its total addressable market (TAM) near-term with Watch and Services, like Apple Pay and streaming music. In total, we see a $3.4T TAM by 2020, up from just under $1B today," she said. "We view the success of Apple Watch as key to convincing investors of this platform / TAM expansion story and related multiple re-rating."

The analyst argues the current valuation doesn't reflect platform multiple. "Our new Base Case price target increases from $133 to $160," the analyst states. "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. 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."

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $128.46 yesterday.

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