For Apple, Price Increases Historically Help Demand, Rather Than Hinder It

Apple Inc. AAPL's hefty price tag for its new line of iPhones shouldn't be a source of concern for investors, at least according to Morgan Stanley's Katy Huberty.

The analyst maintains an Overweight rating on Apple's stock with a price target boosted from $182 to $194 after revisiting her financial model.

The iPhone 8 and 8 Plus will cost $50 and $30 higher, respectively, compared to the iPhone 7 and 7 Plus while the iPhone X was announced $50 higher than expected, Huberty said. Meanwhile, the iPad Pro will cost consumers $50 more, the Watch Series 3 and new TV will each cost $30 more versus prior generations and the price of a two-year AppleCare contract is now $20 higher.

Taking into account Apple's confirmed selling prices, the analyst is revising her prior estimates for fiscal 2018: 1) iPhone ASP up from $746 to $784, 2) iPad up from $446 to $450, 3) Apple Watch up from $393 to $401.

Given the revised pricing data, the analyst's fiscal 2018 revenue estimate for Apple has been raised from $288 billion to $301 billion. In fact, this figure stands 14 percent above the Street's current consensus estimate of $263 billion.

iPhone Demand Correlated To ASP

Apple should be considered a high quality brand with innovative products that command a premium price, Huberty said. To the surprise of some, Apple's strongest iPhone unit growth over the past five years coincided with the largest ASP increase with the introduction of the iPhone 6 Plus.

This trend is not only expected to continue, but Apple's early lead in augmented reality will likely push customer loyalty rates even higher over the coming years, the analyst added.

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