Apple (AAPL) CEO Tim Cook should put on a helmet and leather jacket because his company will be riding an iPhone "supercycle" next year thanks to the highly anticipated iPhone 8 handset, says Morgan Stanley analyst Katy Huberty.
"Our higher near-term iPhone estimates are largely priced into shares," Huberty said in a research report Friday. "However, we're increasingly confident in the upcoming iPhone supercycle driving meaningful estimate revisions and the stock toward our $162 bull case."
Huberty rates Apple stock as overweight and has a base-case price target of 124, up from 123 previously.
Apple stock rose 0.6% to 117.66 on the stock market today, climbing 3.2% for the week.
IBD'S TAKE: Apple stock has an above-average IBD Composite Rating of 71. Better-than-expected iPhone 7 sales are fueling share gains now, but the company's next big catalyst isn't expected until late 2017 with the release of the iPhone 8. For stocks with near-term potential catalysts, check out the article "9 Top Stocks With Near-Term Catalysts: Morgan Stanley."
Huberty raised her estimates for Apple's calendar second-half 2016 because of "better-than-expected iPhone 7 demand." The new handset's improved display, better camera, longer battery life and water resistance are compelling enough to attract Android switchers and iPhone refreshers, she said.
Also, the popularity of the premium iPhone 7 Plus, thanks to its dual-camera system and users switching from Samsung's recalled Galaxy Note 7, should drive average selling prices and profit margins higher, Huberty said.
While the iPhone 7 is doing well, the rumored iPhone 8 should do even better, she said. That 10th-anniversary handset is expected to have a glass-case design and OLED display.
IPhone 7 sales should help Apple's stock in the near term, "but the real catalyst is the fiscal 2018 supercycle" from the iPhone 8, she said.
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