Morgan Stanley analyst Katy Huberty believes that the Apple Inc. (NASDAQ:AAPL)’s acquisition of Beats Electronics is a “low risk” deal that could potentially yield high value.
Speaking to CNBC’s Fast Money, Huberty said that they, at Morgan Stanley, are huge believers of the stock although Apple Inc. (NASDAQ:AAPL) has been recently hitting highs. She added that this is because of two points: first, the company is the only large cap technology stock that is under-owned relative to the benchmark by the biggest holders, and second, they see increasing evidence that their bull case of $860 is justifying itself, because of the iPhone 6, the rumored iWatch and the speed up in the services growth.
Huberty noted that the second point she made is tied to Apple Inc. (NASDAQ:AAPL) acquiring Beats electronics, which she said is a low risk deal, which can bring more gains to the company.
“The low risk is that there is an established device business with a revenue stream that justifies the majority of the valuation. The potential high value comes from the music service business and any other services that this new team can dream up. We published yesterday that one point penetration into the Apple customer base is equal to almost a billion dollars of incremental revenue.”
Regarding Apple’s product pipeline, the analyst considers that there a number of products and services that are in the near-term pipeline for Apple Inc. (NASDAQ:AAPL), such as the iPhone 6 lineup with its larger screens has “huge pent up demand” and will “drive 11 points of market share in the U.S.,” according to a recent survey Morgan Stanley had in the field. She also noted that investors do not have the right approach about the iWatch, with most looking at the Swiss watch market as a proxy to how investors compared netbooks to iPad and BlackBerry to iPhone.
“We think that’s the wrong way to look at it. The right way is to think about the halo effect. What percentage of Apple’s customer base will buy a new i-device? The iPad as a proxy, that’s 30 million to 60 million incremental units coming from iWatch next calendar year.”
View the full video below where Huberty also talks about gross margins for Apple Inc. (NASDAQ:AAPL):