EFTA02386165.pdf

From: Richard Kahn Sent: Sunday, January 8, 2017 10:46 PM To: Jeffrey Epstein Subject: Fwd: Apple, Inc.: 2017 Top Pick with Growing List of Catalysts Richard Kahn HBRK Associates Inc. 575 =exington Avenue, 4th Floor New =ork, NY 10022 tel fax cell Begin forwarded message: From: =/b>"Morgan Stanley" <a Subject: =/b>Apple, Inc.: 2017 =op Pick with Growing List of Catalysts Date: =/b>January 8, 2017 at 5:04:45 PM =ST To: ./b Reply-To: =/b> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/> Wealth =anagement <http://www.morganstanley.com/img/cs/spacer.gif> Subscription Notification January 8, 2017 Download =eport <http://www.morganstanley.com/img/cs/spacer.gif> EFTA_R1_01405791 EFTA02386165 Apple, Inc.: 2017 =op Pick with Growing List of Catalysts Katy L. =uberty, CFA — Morgan Stanley January =, 2017 10:00 PM GMT The market is focusing too =uch on near-term supply chain noise and not enough on three potential =atalysts: 1) iPhone supercycle led by China, 2) cash repatriation, and =) US tax reform. Apple is a top US IT Hardware pick in 2017 with 26% =pside to our PT, 61% upside to bull case. Apple is a top =ick in US IT Hardware in 2017 with several potential catalysts. First, =ecent iPhone weakness signals pent- up demand, especially in China, =head of a major form factor change with significant technology =nhancements, including improved battery technology. Second, Apple is =he largest potential beneficiary of cash repatriation, with $216B =rapped overseas. Third, while border adjustment provisions could limit =pside, Apple could see as much as an 11 point reduction in tax rate. Of =he three catalysts, we believe the iPhone supercycle is most debated by =nvestors who see China as a risk, not an opportunity, after weak demand =n recent quarters. Our view is that China consumer loyalty to Apple =emains high, evidenced by stable market share of 80% at the high-end of =he market, and that weak demand is a function of the lack of a form =actor change during the iPhone 65/7 cycles which will be addressed with =he AMOLED iPhone launch later this year. In fact, our analysis of China =pgraders suggests that even a flat China upgrade rate next cycle will =esult in at least 20% iPhone unit growth, compared to current consensus =f 10%. We expect supply chain data points and repatriation discussions =o positively impact valuation beginning in late C1Q. At llx our FY18 =supercycle) base case EPS, Apple trades at a discount to the 14.5x P/E =ultiple when iPhone 6 launched. We view a return to double digit iPhone =nit growth, larger base of high margin, recurring services revenue, and =ncreased access to international cash as multiple enhancers. Net, our =148 PT assumes a 14x multiple on base case FY18 EPS of $10.60. Higher =Phone unit growth (20%+ vs. our 12% base case) This alert is sent from: Andrew Atlas, com You received this because you asked to =e alerted to: APPLE INC. Please =ontact your FA if you want to unsubscribe from the alerts. <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> Disclosures: Please see =he full report for risks, disclosures and other important =nformation. Important disclosures regarding the =elationship between the companies that are referenced in Morgan Stanley =esearch and Morgan Stanley Wealth Management research are available on =he Morgan Stanley Wealth Management disclosure website at https://www.morganstanley.com/online/researchdisclosures. 2 EFTA_R1_01405792 EFTA02386166 Morgan Stanley Wealth Management Not Acting as Municipal =dvisor Morgan Stanley Wealth Management is not acting as a municipal =dvisor to any municipal entity or obligated person within the meaning =f Section 158 of the Securities Exchange Act (the "Municipal Advisor =ule") and the opinions or views contained herein are not intended to =e, and do not constitute, advice within the meaning of the Municipal =dvisor Rule. Copyright The =opyright in materials provided by Morgan Stanley is owned by Morgan =tanley & Co. LLC. Morgan Stanley Wealth Management is the trade =ame of Morgan Stanley Smith Barney LLC, a registered broker-dealer in =he United States. © 2017 Morgan Stanley Smith Barney LLC. Member =lPC. <http://www.morganstanley.com/imecs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> 3 EFTA_R1_01405793 EFTA02386167