Why We're Increasing Our Fair Value on Apple

On Sept. 12,

Given that customers have shown a willingness to pay a premium for Apple’s flagship devices despite intense competition across the high-end smartphone market, Apple’s pricing of its latest iPhone lineup implies management expects strong customer stickiness to persist. This corroborates with our narrow-moat rating based on switching costs and intangible assets. After incorporating Apple's latest pricing and roll-out schedule into our valuation we are raising our fair value estimate to $200 from $175 per share, as we hold our iPhone unit sales estimates relatively constant but assume higher future average selling prices, or ASPs, into our model. However, we still view shares of this smartphone titan as overvalued, as we think the market may be too bullish on near-term and long-term iPhone revenue; ASPs for the iPhone may remain elevated into the future but we don’t foresee strong volume growth given the marginal nature of the improvements in this year’s iPhones and, likely, future models.

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