Apple (AAPL) CEO Tim Cook‘s appearance at the Goldman Sachs technology conference in San Francisco this morning has unleashed several Street points of view. I mentioned Piper Jaffray’s Gene Munster appearing on CNBC immediately after Cook’s presentation to talk about prospects for a cheaper iPhone
There was also a note a short while ago from Morgan Stanley’s Katy Huberty, who has an Overweight rating on the shares, and a $630 price target, calling Apple stock a “free option on innovation.”
AAPL shares price in negative earnings growth. We view the stock as a free option on Apple innovation with product refreshes (iPhone / iPad), new distribution (NTT Docomo, China Mobile), and expansion into new segments (iTV or iWatch) as catalysts that could change market perception and valuation.
Huberty thinks the stock currently reflects a long-term earnings per share decline of 4% despite 14% revenue growth. “In other words, investors expect significant share losses and/or margin contraction.”
Huberty thinks the rumored “smart watch,” if true, could be a $10 billion to $15 billion revenue opportunity, perhaps adding $2.50 to $4 to EPS annually. “This assumes a 20% attach rate to the current 500 million active iTunes accounts.”
Huberty still is modeling the potential for $17 billion in revenue from an Apple television set, with perhaps $4.50 per share in earnings contribution. “This assumes 10% penetration of active iTunes accounts and $1,300 average selling price.”
Importantly, iTV and iWatch present new services opportunities that can differentiate Apple’s broader product portfolio, improving investor sentiment around Apple�s ability to maintain market share. Possibilities include, mobile payments service linked to iTunes / iWatch and video search and multi-screen viewing with iTV.
Apple shares are down $9.80, or 2%, at $470.13.