Apple Inc. Price Target Upped On Smartwatch Estimates

Wall Street may be underestimating demand for Apple Inc. (NASDAQ:AAPL)’s smartwatch, according to Morgan Stanley analysts. As a result, they bumped up their price target for the company’s stock from $115 to $126 per share and reiterated their Overweight rating.

Demand for the Apple Watch

In a report dated Nov. 19, 2014, analyst Katy Huberty and her team call Apple their “best idea.” They provide the results of their latest AlphaWise survey and their estimates for Apple Watch sales.

They’re expecting Apple to sell 30 million smartwatches in the 2015 calendar year. That’s a 10% penetration rate of all iPhones that are compatible with the device. It’s also significantly higher than some Wall Street estimates of between 10 million and 12 million.

The Morgan Stanley analysts said their 30 million Apple Watch estimate in 2015 is at the high end of Wall Street estimates, but they still think it’s conservative.  They point to the results of their AlphaWise survey about purchase intent for the Apple Watch and say that intentions to buy the smartwatch are higher than they were for both the iPhone and iPad before their respective launches. All charts / graphs are courtesy Morgan Stanley.


Apple to benefit from wearables explosion

The Morgan Stanley team thinks the wearable computing segment will be the “fastest ramping consumer device” so far, ramping up even faster than smartphones or tablets. By 2020, they think the wearable market will be between 530 million and 1 billion units.

In terms of the Apple Watch, the Morgan Stanley pointed to a trend of Apple beating expectations for sales of new products. For example, Wall Street projected 9 million iPhone units for the 2008 fiscal year after the introduction of the first iPhone. However, Apple shipped 12 million units.

The analysts also note that skepticism on the iPad was even worse, with Wall Street expecting 5 million units in the 2010 calendar year before the April 2010 launch. However, supply chain builds at that time suggested between 8 million and 10 million units, and Apple ended up shipping 15 million iPads in 2010.

Apple estimates increased

The Morgan Stanley team also found in their survey that the Apple Watch has the highest interest among possible wearables vendors consumers might consider buying from, with Sony Corporation (ADR) (NYSE:SNE) (TYO:6758) following close behind.


As a result of their survey, Morgan Stanley analysts are increasing their estimates for Apple. Their base case earnings per share estimate for the 2015 calendar year rises from $8.20 to $8.40 per share. That increase comes as a result of their Apple Watch unit estimate increase, which moves from 27 million up to 30 million.

That brings their price target for Apple from $115 to $126 per share.