Morgan Stanley sees Apple gross margins staying above 42%
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Apple (NASDAQ:AAPL) should be able to achieve sustained gross margins of 42%+ due to gradual supply improvements and structurally lower depreciation and amortization (D&A) improvements, Morgan Stanley analyst Katy Huberty said in a recent note to clients.
The tech giant's 10-Q showed March quarter gross margin, adjusting for warranty tailwind, increased 80 basis points to 43.1%, the second strongest in 10 years, the analyst said.
"The decline in D&A as a percentage of revenue has led to an average of 125 bps of gross margin tailwinds over the past 4 quarters, which we believe is structural in nature given Apple's (AAPL) efforts to accelerate the in-sourcing of key components such as processors, sensors, displays, batteries, and cameras," Huberty said.
She also noted that vendor non-trade receivables plus the company's inventory fell less than normal seasonality, but expects elevated inventory to reverse as supply normalizes.
Note that Apple (AAPL) is among Morgan Stanley's highest conviction stock picks

Last week, Apple (AAPL) turned in better-than-expected Q2 results, with Services hitting an all-time high