Apple's moat just got wider over at Morningstar

Two years ago, analyst Abhinav Davuluri rated Apple's moat as "narrow" and gave the stock a fair value of $71. Now he calls the same moat "wide" and gives Apple a fair value of $150.

From "Is Apple Stock a Buy Ahead of Earnings?" posted Wednesday:

Economic Moat Rating. Our wide economic moat rating is based on the combination of switching costs, intangible assets, and network effects associated with Apple’s iOS ecosystem. We think the company’s primary moat source stems from high customer switching costs based on many aspects of Apple’s hardware, software, and services. We view the smartphone as the most essential computing device for users, and despite innovations in other types of electronic devices, we don’t see it going away anytime soon. The smartphone has already replaced a host of stand-alone electronics devices while emerging as the primary portal with an intuitive interface for many other digital services in a pocket-size form. The iPhone fostered the industry and has maintained its position as the premier smartphone, and we expect Apple to increasingly monetize its valuable installed base with the iPhone as the catalyst.

Fair Value Estimate for Apple Stock. Our $150 fair value estimate implies a forward GAAP price/earnings ratio of 24 times. In fiscal 2023, we expect total revenue to be up 3% thanks to strength in iPhone, wearables, and services sales, partially offset by weaker Mac and iPad revenue following multiple strong years associated with working- and learning-from-home trends due to COVID-19. We expect services to grow at a 7% compound annual rate over the next five years, while wearables, home, and accessories revenue should generate strong high teens growth. We expect gross margins to normalize around 40%, thanks to Apple’s exceptional premium pricing strategy and stable iPhone margins. We expect operating margins to remain around 30% over our five-year forecast period.

My take: At first I thought Morningstar had hired a new analyst. But no, it's the same guy. With a new attitude.

See also: Morningstar: Apple's moat is narrow and its shares overvalued

5 Comments

  1. Miguel Ancira said:
    I qualify Morningstar as ‘narrowminded’…but that is just me. Check back in 2 years.

    3
    January 25, 2023
  2. David Emery said:
    Morningstar says “P/E of 24 for Apple.” What are they saying for other companies, such as Microsoft?

    4
    January 25, 2023
  3. Michael Goldfeder said:
    Apple’s moat makes the Grand Canyon look narrow.

    8
    January 25, 2023
  4. Gregg Thurman said:
    Apple’s “moat” looks more like a sea, than a pond surrounding a castle.

    2
    January 26, 2023

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