Apple: We’re Comfortable With Our Thesis In Light of Antitrust Lawsuit

Key Morningstar Metrics for Apple

• Fair Value Estimate: $160.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

We maintain our $160 fair value estimate, medium uncertainty rating, and wide moat rating for Apple AAPL after the company was hit with an antitrust suit from the US Department of Justice. We are unsurprised by the suit, which has been rumored for months and follows similar actions against other large technology firms like Alphabet GOOGL/GOOG. We don’t foresee the suit resulting in a significant demolition of Apple’s business or moat.

In our base case, we assume the suit will result in some opening of Apple’s walled garden ecosystem, similar to what we expect from the European Union’s Digital Markets Act. We still believe most Apple users opt into the firm’s premium closed ecosystem, and we don’t predict significant attrition for the firm’s products and services even in a more open environment. The company’s shares dipped more than 3% during trading on March 21, a stark difference from other technology stocks’ positive performance. We see Apple as fairly valued.

The suit is wide-ranging, mentioning the App Store, Apple Pay, iMessage, and the Apple Watch. It appears to target Apple’s core strategy of wrapping customers into its iPhone ecosystem with auxiliary products and services. We could reasonably foresee Apple opening portions of this ecosystem—allowing third-party payment services, for example—and it has already planned to move to a more interoperable messaging standard.

We don’t model a massive impact from the suit. We believe users will generally continue to choose Apple’s easy-to-use ecosystem, even against more widely available potential alternatives. We also expect the suit to take years to bear out, with the additional possibility of a new US presidential administration changing the priorities of litigators.