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Stock Strategist

What Do Cheaper iPhones Mean for Apple?

We don't expect a rebound in Apple's phone sales this year, and we think the stock's overvalued.

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Apple (AAPL) held its annual product showcase this week, during which it announced the launch of three new iPhone models: iPhone 11, iPhone 11 Pro, and iPhone 11 Pro Max. The last two devices feature an OLED display while the former has a liquid-crystal display. Apple modified its pricing strategy with the iPhone 11; the upgraded equivalent of last year’s iPhone XR will start at a price of $699, compared with the XR’s starting price tag of $749. The $50 drop for the newest least expensive model supports our belief that Apple’s switching costs have a limit and thus merit a narrow--not wide--economic moat rating.

We consider the improvements in the iPhone 11 series to be relatively marginal and suspect many users will opt to wait for a 5G-compatible iPhone in 2020. Thus, we are not forecasting a rebound in iPhone unit sales this year, particularly in China, where we believe 5G will be a bigger factor as many Android devices already include 5G modems. We are maintaining our $200 fair value estimate for Apple, and we view the shares as overvalued at current levels.

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Abhinav Davuluri does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.