Why You Should Buy Apple Ahead of Earnings

Tickers in this article: AAPL

NEW YORK (TheStreet) -- Apple is set to report fourth-quarter earnings, and given the hype and hoopla surrounding the iPhone 5s/5c and what's in store with next week's iPad event, it's going to be a doozy of a report. One analyst is making a very bold call, saying shares should be bought ahead of the print.

Morgan Stanley analyst Katy Huberty, who rates shares "overweight" with a $540 price target, notes that "Apple is becoming a clean story again with upside to our estimates, signs of meaningful innovation in iOS 7 and 5s, strong positioning for the next computing cycle (IoT), and rebuilding of the management bench all signs of a positive trajectory in FY14," she wrote in her report. "We are buyers into a strong Sep Q print."

Huberty expects exceptionally strong numbers for the September quarter, due in large part to the popularity of the iPhone 5s. She expects 34.5 million iPhones to be sold in the quarter, but adds that this number could have reached 37 million, if not for supply constraints. That would allow Apple to earn $8 a share, generating gross margins of 37% and $37 billion in revenue.

Meanwhile, Wall Street analysts surveyed by Thomson Reuters expect the Cupertino, Calif.-based firm to earn $7.88 a share on $36.76 billion in revenue. When Apple announced it had sold over 9 million iPhones in the opening weekend of availablity, it raised guidance. "Apple expects total company revenue for the fourth fiscal quarter to be near the high end of the previously provided range of $34 billion to $37 billion, and expects gross margin to be near the high end of the previously provided range of 36% to 37%," the company said in an SEC filing.

As for the all-important holiday season, Huberty expects a monster number, particularly iPhone sales. She predicts that 55 million iPhones will be sold in the December quarter, above Wall Street's projection of 53 million. Last holiday quarter, Apple sold 47.8 million iPhones, so if the 55 million number is hit or exceeded, that would mean 15% year-over-year growth.