EFTA00628762.pdf

From: Richard Kahn To: Jeffrey Epstein <jeevacation@gmail.com> Subject: Fwd: Apple, Inc.: Stabilization Sets Up for Supercycle Date: Wed, 27 Jul 2016 09:19:58 +0000 Richard Kahn 211. Begin forwarded message: From: "Morgan Stanley" Date: July 26, 2016 at 9:48:24 PM EDT To: <I Subject: Ap le, Inc.: Stabilization Sets U for Su ercycle Reply-To: WEALTH MANAGEMENT Subscription Notification: July 27 Apple, Inc.: Stabilization Sets Up for Supercycle Katy L. Huberty, CFA — Morgan Stanley July 27, 2016 1:42 AM GMT Our FY17 EPS ($8.80, from $8.55) and PT ($123, from $120) move higher on channel inventory reductions that set-up for better than expected back half results. We expect shares to re-rate as the pace of declines improve and in anticipation of a more robust iPhone cycle in 2017. We expect investors to begin positioning for another iPhone supercycle starting in the EFTA00628762 next several months. The bear case is off the table (or at least diluted) and management sounded more positive on iPhone demand. We continue to see meaningful improvements in battery life and display innovation driving an accelerated upgrade rate with the September 2017 iPhone launch. With a growing iPhone installed base and the highest switching rate ever, Apple could see an even bigger supercycle in just over a year compared to iPhone 6 in 2014. What's more, Apple appears more focused on Artificial Intelligence and Augmented Reality applications that can further support improving upgrade rates and possibly switching rates, and sustain Services growth. We see Apple earning $10.20 in EPS in FY 18, ahead of current consensus of $9.54. Results and guidance push margin debate to the back burner. June quarter gross margin came in at the high end of the guidance range (37.5-38.0%) despite higher than expected channel inventory reductions ($3.6B vs. $2B) as COGS were better than expected due to component cost declines and better product quality (lower warranty accruals). While we fully expect investors to question the impact of a higher iPhone 7 bill of materials like in past cycles, the gross margin bear case is less compelling as Apple just gave stable gross margin guidance despite NAND prices rising, SE mix increasing, and the toughest foreign currency compare (large hedge gains a year ago). Some may attribute the better than expected September quarter guidance to a potentially earlier ship-date for iPhone 7 than last year, but if that is the case, guidance already bakes in the margin implications of the Click here to see the full report. This alert is sent from: Andrew Atlas, You received this because you asked to be alerted to: APPLE INC. Please contact your FA if you want to unsubscribe from the alerts. Disclosures: Please see the full report for risks, disclosures and other important information. Important disclosures regarding the relationship between the companies that are referenced in Morgan Stanley research and Morgan Stanley Wealth Management research are available on the Morgan Stanley Wealth Management disclosure website at https://www.morganstanley.com/online/researchdisclosures. Morgan Stanley Wealth Management Not Acting as Municipal Advisor Morgan Stanley Wealth Management is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 15B of the Securities Exchange Act (the "Municipal Advisor Rule") and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of the Municipal Advisor Rule. Copyright The copyright in materials provided by Morgan Stanley is owned by Morgan Stanley & EFTA00628763 Co. LLC. Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States. C 2016 Morgan Stanley Smith Barney LLC. Member SIPC. EFTA00628764