Lion's AppleWatch

	Friday, February 26, 2010

Apple: 3 paths to $325+ per share
A Morgan Stanley analyst offers one scenario where AAPL could hit $435 by 2012

Click to enlarge. Source: Morgan Stanley

In a report to clients issued Friday, Morgan Stanley's Katy Huberty offered one of her patented risk-reward snapshots of Apple (AAPL), this one even more optimistic than the last, thanks to what she sees as two new catalysts:

The iPad launch in March. Huberty is anticipating unit sales of 6 million in calendar 2010, considerably higher than the Street's consensus of 3-4 million

New iPhones in June. She's expecting new models that offer "both a lower total cost of ownership and new functionality, potentially including gesture-based technology"

Huberty offers her usual three scenarios — bull, base and bear — but leans heavily toward the bull, describing three paths to share prices as much as 115% above Apple's closing price Thursday of $202 per share.

Her three "bull scenario" paths:

Broader global carrier distribution gives Apple a 10% share of the total global handset market (not just smartphones) by fiscal 2012. By her math: 12 times the iPhone's fiscal 2012 EPS of $32 + 10 times Apple's core EPS of $5 = $435 per share.

Lower-end device and/or service plans give Apple 15% of the global handset market share and an average carrier subsidy of $200 per unit. 12 x fiscal 2012 iPhone EPS of $25 + 10 x core EPS of $5 = $358/share.

The iPhone sells unsubsidized, broadening Apple[base ']s TAM (total addressable market) and placing it in a position to grab 33% of the worldwide handset market. 12 x fiscal 2012 iPhone EPS of $23 + 10 x core EPS of $5 = $325/share.

Huberty's less optimistic scenarios are still pretty rosy.

Base case scenario: $250/share. Broader iPhone distribution doubles market share by fiscal 2012. Apple sells 6 million iPads and adds $1 to its EPS of $13.20 in calendar 2010. Multiple of 19x, which is the low-end of Apple's historical range.

Bear case scenario: $180/share. iPhone shipments and gross margins come under pressure due to carrier subsidy pushback. iPhone units rise to 35M units in calendar 2010 but iPhone gross margins fall closer to 50%. Market multiple on EPS of $12.

6:58:58 PM

Apple reveals plans to open 25 retail stores in China
At Apple's annual shareholders meeting at its campus in Cupertino, Calif., Thursday, the company revealed it intends to open 25 stores in the nation of China.

Though the press was barred from covering Thursday's event live, Philip Elmer-DeWitt of Fortune Brainstorm Tech provided updates from the annual meeting. (see article below)

Apple will build more stores in China soon, as Ron Johnson, senior vice president of retail, announced the plans for expansion in the nation of over 1 billion. Last month, Apple executives revealed they are more focused on building the company's brand in China than they are about achieving blockbuster sales as they attempt to crack the foreign market.

The company's first Chinese store opened in 2008, prior to the Olympic games in Beijing. Plans for the second store, which will employ a classic Chinese design, were revealed last summer.

Apple has sold more than 200,000 iPhones in China since the handset debuted last fall. Some have said that a pre-paid option would be more acceptable to consumers in the nation, and could catapult overall sales up to 10 million.

Early this month, Apple's business presence in China came under scrutiny from U.S. Sen. Dick Durbin. Apple, along with 30 other technology companies, was asked to provide information on its human rights practices in the country, particularly as they pertain to freedom of expression and privacy.

Apple Store Sanlitun in Beijing, China 2:16:41 PM

Inside Apple's shareholders meeting
The press, as usual, was barred from bringing communication devices into the Apple (AAPL) shareholders meeting that began at 1 p.m. EST (10 a.m. PST) Thursday.

But, as often happens, word is leaking out despite the blackout thanks to iPhones in the hands of shareholders who shall go unnamed. We'll post their dispatches (all times EST) as they come in.

12:37 Just going in to mtg hall … Said hello to [Roughly Drafted's] Daniel Eran Dilger. [CNBC's] Jim Goldman is on scene… I'll try to say hi after the mtg. Security is very prominent

12:59 Board now taking their seats [Al] Gore, [Andrea] Jung and [Bill] Campbell all in the house. Now Apple mgmt. [Steve] Jobs in the house kicking off the mtg

1:00: Jobs looks good!

1:08 Voting and formalities … Yawn. Shelton Ehrlich now protesting Al Gore glaciers are not melting! Another shareholder stands in support of Gore to resounding applause

1:13 Sustainability proposal now on stage. Environmental groups pushing for an even greener Apple

1:21 The ever entertaining Shelton Ehrlich at the mike again calling environmental movement a new religion and sustainability proposal should be voted down. The environmentalists are not happy w/Ehrlich and they are here in force grabbbing the mike to counter Ehrlich

1:27 Sustainability proposal voted down by shareholders. Steve back on stage with [COO] Tim Cook and [CFO] Peter Oppenheimer. Shareholder says very glad to have Jobs health and back! big applause! Jobs thanks Tim Cook for his stewardship

1:43 Twenty five Apple Stores planned for China over next 2 years [Ed note: This is material news.]

1:47 [Unnamed shareholder] grabbed the mike. Thanked Tim Cook for his presentation at Goldman Sachs Tech Conference. Thanked [Senior VP] Ron Johnson for his stores and China plans. Then requested that the board meet and authorize a share buyback. Steve thanked [shareholder] for the input

1:50 Steve answering vast majority of Qs … He is looking and sounding in fine form!

1:54 Steve is as feisty as ever (suggesting that questioners come to an actual question) and in good humor!

2:03 Shareholder says Apple needs more women on Apple's board … Thanks and applauds [Avon CEO] Andrea Jung and asks if Tipper Gore can join the board

2:03 [Reuters is reporting that Jobs told shareholders that the company's $40 billion cash balance offered it more flexibility and security, and that a dividend or stock split would not change its value. He said the company is now big enough that it had to "think big" to move the needle. Bloomberg reports it slightly differently: "Apple is holding onto cash to take 'big, bold' risks, Jobs said."]

2:06 [Apple's shares moved briefly into positive territory, having been down more than 1% most of the day, after CNBC said Apple was considering a 4-for-1 stock split, citing "market rumors."]

[The Wall Street Journal is reporting that when asked about Eric Schmidt (Google's CEO who left Apple's board last summer), Jobs defended him: "Eric Schmidt conducted himself appropriately and recused himself on matters that might involve conflict."]

2:08 In response to more environmentalists' Qs, Jobs is very cogently and passionately defending Apple's environmental record. Another shareholder then asked a longwinded Q about what Apple/Jobs fears. "What keeps you awake at night?" … Jobs deadpans: "Shareholders meetings." Audience erupts in laughter

2:12 iPhone exclusivity question (Verizon): No comment… Not even a hint

2:19 Meeting winding down. Jobs cracking jokes … In total charge of the meeting, now over

That's a wrap.

CNBC's Jim Goldman filed a video report shortly before 4 p.m. that included this quote from Jobs on why Apple keeps so much cash on hand: "We want to take risks, technical risks … We want to know that the ground is still beneath us when we jump."

Apple shares closed at $202, up 1.34 points (0.67%) on a day that the Dow fell 0.51%.
1:58:13 PM

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