Apple CEO Tim Cook holds the new iPhone 14 Pro during a special Apple event on September 7, 2022 in Cupertino, California.
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Shorter-term macro issues do not detract from long-term value an appleanalysts at Morgan Stanley wrote in a note on Friday, reaffirming their overweight and $175 price target.
“Taking a step back, it’s rare to see Apple miss and decline for a quarter, but we think the long-term positives from today’s report outweigh the short-term negatives,” Morgan Stanley’s Eric Woodring wrote. Apple’s earnings report on Thursday evening cited a strong dollar, lingering manufacturing issues in China and the broader macroeconomic environment as three reasons for Apple’s first year-over-year sales decline since 2019.
“As far as the third factor, I would say it’s just a challenging macroeconomic environment, and you’re hearing that from everybody, I think,” CEO Tim Cook told CNBC’s Steve Kovacs.
But Morgan Stanley rates these headwinds as transitory, citing both accelerated iPhone installed growth and continued upward profitability trajectory as long-term growth potential that ensures “Apple’s flywheel keeps turning.”
Morgan Stanley reaffirmed its top pick rating for Apple. The company has weathered the broader tech downturn with considerable success and is one of the few tech companies to have avoided layoffs and maintained a level of operating expense discipline.
It’s the same discipline that’s helping Morgan Stanley analysts maintain an upbeat outlook for Apple, leading to a March 2023 gross margin of 43.5% to 44.5%, the note said.
“We think Apple’s ability to post its highest gross margin in a decade despite declining year-over-year revenue is impressive, and moving forward, we expect gross margins to improve as mix, FX, commodities and logistics work in favor of Apple through the end of 2023 and into FY24,” Morgan Stanley said in a note.
Apple’s user spending levels also support Morgan Stanley’s growth, suggesting that “core drivers of Apple’s model remain robust.”
Investors seem to have taken Morgan Stanley’s assessment of Apple’s longevity as a long-term investment. Apple shares rose about 1% at the open on Friday despite the lack of sales, paring losses after a 4% drop on Thursday night. The company also reported misses on the top and bottom lines, beating analysts’ expectations only in iPad and services revenue.
— CNBC’s Michael Bloom contributed to this report.