Analyst Bets Apple, Inc. Stock Will Hit All-Time Highs at $110

Here's the story on why this analyst thinks Apple stock will get to $110 in the next 12 months.

Daniel Sparks
Daniel Sparks
Jul 14, 2014 at 1:33PM
Technology and Telecom

Morgan Stanley analyst Katy Huberty is out with a bullish bet for Apple (NASDAQ:AAPL) stock, increasing her price target for the stock to $110 from $99. The main driver for the increase? Greater optimism for Apple's alleged iWatch.

iWatch concept design by SET Solution. Image used with permission. Watch a video of this concept here.

Why so bullish?
Shorter-term, Huberty predicts that Apple is likely to beat the Street's expectations when it reports third fiscal-quarter results thanks to an estimated 25% year-over-year boost to iPhone sales.

Longer term, Huberty points to Apple's customer loyalty to explain why iWatch adoption is likely to be surprising (via AppleInsider). The so-called iWatch, she says, could see as many as 60 million units sold in the first 12 months of availability, as Apple's current user base opts to buy an iWatch to compliment their current Apple products. Even her bear case for the iWatch of 30 million units would more than double first-year iPad sales of 14.8 million. And, notably, first-year iPad sales were way above analyst estimates for just 3.3 million. 

Loyalty matters
Huberty is right about Apple's loyalty as a potential driver of sales. Apple CEO Tim Cook often boasts about Apple's impressive satisfaction and loyalty rates.

At the 2014 Worldwide Developers Conference, for instance, Cook said iOS has an unparalleled 97% satisfaction rating, citing a Changewave survey.

Further, a survey by WDS earlier this year showed that Apple smartphone users were shown to be considerably more loyal than those for other manufacturers. Based on more than 3,000 interviews in the U.S., UK, and Australia, 76% of Apple customers replace their phones with an iPhone, WDS reported. Samsung came in second, at 58%. All other manufacturers came in with a poor loyalty rate of 33% and below.

iPhone 5s.

Loyalty is an important driver for Apple's business. As Apple has explained on many occasions, Apple customers often experience the "halo effect." In other words, one Apple iPhone purchase often leads to follow-up sales of other products or future iPhones.

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And, thanks to Apple's robust lineup of different products, this halo effect can greatly leverage the value of one customer once that customer buys in to Apple's "sticky" ecosystem.

Huberty says the same halo effect that drove iPod users to buy a Mac, and iPhone users to buy any of Apple's other products, will help drive surprising iWatch adoption.

Beyond a 12-month price target, there is a deeper story here for long-term Apple investors. The idea here that the halo effect could drive meaningful sales of a new product shows the power of Apple's strict emphasis of an excellent customer experience at the high end of the market. This sort of positioning gives Apple a way to sustainably have a competitive advantage over peers who focus more on market share than they do on building customer loyalty.