Apple Inc. Deserves A Higher Multiple: Morgan Stanley

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Apple Inc. Deserves A Higher Multiple: Morgan Stanley
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Apple is reportedly planning to launch a streaming TV service offering 25 channels this fall. The Cupertino company’s recent moves lend support to the rumors. It has slashed the price of Apple TV hardware to $69 and signed an exclusive deal with HBO Now. Now Morgan Stanley analyst Katy Huberty has issued a bullish research note on the stock. Huberty says Apple deserves a higher multiple due to its upcoming streaming TV service.

Streaming TV could add $5.5 billion to Apple’s revenue

Morgan Stanley said the Cupertino company should be viewed as a ‘platform.’ Even if only 8% of existing Apple users in the U.S. sign up for its streaming service, the company will have more than 15 million subscribers. Assuming the service is priced at $30 a month, it would add $5.5 billion to the company’s annual revenue.

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Katy Huberty recently conducted a survey, which showed that over 20% of paid TV subscribers plan to cut the cord in the next 12 months. Morgan Stanley argues that Apple’s growing services business could account for as much as 20% of its earnings within a couple of years. She also found that Americans spend, on average, 12% of their time watching TV every day.

Apple should be trading compared to ‘platform’ peers

The streaming TV service, Apple Pay, App Store, the iTunes Store, and Beats Music could give a major boost to the tech giant’s “Services” category. The iPhone maker is expected to relaunch Beats Music that will be integrated into the iOS music app and OS X iTunes app. Katy Huberty said the “Services” category was key to her platform thesis.

Morgan Stanley says Apple stock should be compared to platform peers. It deserves an 18x to 19x PE ratio. The research firm has an Overweight rating on the stock with $160 price objective. Katy Huberty’s thesis also includes everyday usage of Apple’s products and services, its pricing premium, recurring revenue, and opportunities to expand its total addressable market.

Apple shares rose 0.18% to $127.73 at 12:31 PM EDT on Friday.

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