The $310 to $400 Apple Stock Call (AAPL, T, VZ, MSFT, XOM)

Apple Inc. (NASDAQ: AAPL) is trading up better than the broad market’s current losses and far better than the nominal gains seen at NASDAQ today. The reason is an aggressive analyst call from Morgan Stanley. The upgrade is on estimates, target and even in name as the stock is now on the firm’s Best Ideas list. The base-case target $310, up from $275 before. What is more interesting is that the scenario has been laid out for Apple shares to hit $400 per share, and the bearish case is only a price target of $210 per share. This call also lays out the foray of today for AT&T Inc. (NYSE: T) to include Verizon Communications Inc. (NYSE: VZ) in the future for being a distributor of the iPhone.

Morgan Stanley’s Katy Huberty is bullish because of strong iPhone and iPad. The secondary notions are on the growth from investments in China and more importantly in enterprise penetration.

So how about the note about a $400 price target? That is the bullish case for the call, and it is based upon a $20.00 EPS target for 2011, with a multiple of 20-times normalized earnings. The base case today is for estimates of $13.68 for 2010 and raised estimates to $16.33 EPS (from $14.62) in 2011 and $18.75 EPS (from $19.20) in 2012. For a comparison, consensus EPS for each of the years 2010 to 2012 is as follows: $13.13, $15.14, and $17.87. The bull-case also assumes Apple ships 12 million iPads and 73 million iPhones in 2011 with broader distribution (sales/carriers), strong upgrade rates, and also price declines to pump up demand.

The good news is that even the bearish case where gross margins compress and where pressures form only comes down to a $210.00 price target under the bearish case. In short, the call is $60 UP versus $40 DOWN…. or $150 UP if you get real bullish.

Morgan Stanley also raised the calendar year 2011 iPhone unit sales estimates to 61.5 million units, approximately 25% above consensus. Another notion is that 58% of existing iPhone users plan to upgrade and that Apple could either lower its price on the phone or on its service plans as price is the major purchasing barrier for new users.

As far as AT&T, Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ), Morgan Stanley’s note says that while no plan to go outside of the AT&T exclusivity deal that some 17% of Verizon’s customers would upgrade to a Verizon iPhone. But as far as IF versus WHEN, the research is calling for a base-case launch in the second half of 2011 as when the exclusivity will no longer be there.

Without going on and on, let’s just consider the math on the $400 target. A forward P/E of 20 based upon $20.00 normalized EPS. At $250, Apple’s current market capitalization is just over $227.5 billion. At $400.00, the market cap would be $364 billion. The gap on market caps is now there: Microsoft Corporation has a $233 billion market cap today and it is #2 on our “real-time 500″; Exxon Mobil Corporation (NYSE: XOM) has a market cap of $284.3 billion today.

A $400 target would make Apple the largest company in America by market cap. And then some, and then some more.