Shares of Apple climb as Morgan Stanley lifts estimates, adds stock to list of ‘best ideas’

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Analyst adds Apple stock to list of ‘best ideas’

NEW YORK — Shares of Apple climbed Monday as a Morgan Stanley analyst raised her profit estimates on the iPhone and iPad maker and added the company’s stock to the firm’s list of “best ideas.”

Analyst Katy Huberty called Apple’s growth opportunities “underappreciated.” She raised her price target on its shares to $310 from $275 citing better-than-expected iPad demand, continued gains from the iPhone and growth in China. She also raised her estimate for 2011 earnings per share to $17.25 from $16.09.

Huberty expects shipments of iPad tablet computers to surpass market expectations, noting that the device sold twice as fast in its debut as the iPhone when it was new. A million iPads were sold in the month after launch, and Huberty expects Apple to ship between 7 million and 9 million iPads in the first year compared with prior forecast of up to 6 million.

While Apple has not announced plans to sell the iPhone through any U.S. carriers outside of AT&T Inc., Huberty notes that 17 percent of Verizon customers would upgrade to a Verizon iPhone if given the choice.

“While international markets drove much of the iPhone upside over the past six months we do not believe U.S. penetration has peaked,” Huberty said.

Huberty added that pricing remains a major purchase barrier. The company could increase U.S. demand by about 40 percent if it dropped the average iPhone selling price by $50 to $150 or lowered the average service plan cost by $20 to $75, she said.

Lower iPhone costs also could double demand in China, a market Apple “is just beginning to tap,” Huberty said.

Nearly 60 percent of iPhone customers are expected to upgrade their devices in the next year, she said. That’s far higher than the 18 percent upgrade rate seen in 2008.

Shares of Apple jumped $4.44, or nearly 2 percent, to close at $246.76 Monday. The stock peaked at $250.90 during the session even as the broader markets declined.