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The Ratings Game

July 13, 2020, 2:23 p.m. EDT

Apple stock rallies toward another record high amid hope for iPhone trade-ins, China demand

Analysts at Morgan Stanley and Wedbush boosted their price targets Monday

By Emily Bary


Justin Sullivan/Getty Images
Consumers focused on cost savings and environmental sustainability could drive increased demand for Apple’s iPhone trade-in program, according to Morgan Stanley.

Apple Inc. shares are up nearly 2% Monday afternoon and on track to record yet another record closing high after a pair of analysts offered increasingly upbeat views of the smartphone giant.

Morgan Stanley’s Katy Huberty is optimistic that the company can see big benefits from its iPhone trade-in program as consumers look to become more sustainable and save money on electronics purchases. A recent Morgan Stanley survey found that adoption of electronics trade-in programs is set to grow further, as 48% of consumers are already taking advantage of trade-in programs generally, while 77% of people said that they planned to take advantage of one by 2021.

Apple (NAS:AAPL)  introduced a new iPhone trade-in program early last year that Huberty said is still “nascent” but could prove to be a “sustainable competitive advantage” for the company. Apple’s phones tend to have a resale value that’s 2.6 times what Androids can be resold for, she said, which is good for both smartphone shoppers and Apple.

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“The proposition for consumers is compelling in our opinion as the trade-in program meaningfully lowers the net purchase price of an iPhone,” she wrote. Apple, meanwhile, gets the benefit of more competitively priced devices on a net basis, which can help with user retention. The company offers customers a better deal if they trade in their iPhones for new iPhones rather than cash or store credit, Huberty said.

She calculates that nearly a third of estimated iPhone sales over the next three years could be funded by trade-in credit as the program grows in popularity. Huberty raised her price target on Apple shares to $419 from $340 in a note titled “Discovering the iPhone Pot of Gold,” and she maintained an overweight rating on the stock.

Meanwhile, Wedbush analyst Daniel Ives also has a positive view of the prospects for iPhone business. His sanguine view stems from improved sentiment in China. He saw a “continued demand snapback” in China during June, which could set the stage well for the fall, when Apple is expected to launch its first 5G-enabled iPhones.

“We believe in China alone between 60 million to 70 million iPhones are in the window of an upgrade opportunity over the next year with Apple going aggressively at all price points (SE, iPhone 12) to cement its installed base despite competitive pressures from domestic players,” wrote Ives, who raised his Apple price target to $450 from $425.

Apple shares have rallied 43% in the past three months. By comparison, the S&P 500 (S&P:SPX) has gained 16.5%, the Dow Jones Industrial Average (DOW:DJIA)  has added 13.4%, while technology-laden Nasdaq Composite Index has returned 30.5% over a three-month period.

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