Apple investors got a shot in the arm on Friday on reports that the iPhone 11 is seeing higher-than expected demand.
Shares of Apple (AAPL) - Get Report were up 2.36% to $226.03 on Friday after Nikkei Business Daily reported that Apple has boosted production of the iPhone 11 line by 10%, or around eight million units. The boost was driven largely by higher-than-expected demand for the lower-priced iPhone 11 models, and weaker-than-assumed demand for the $1,099 iPhone 11 Pro Max.
As Apple prepares to roll out new services this fall, including Apple TV+ and Apple Arcade, which will join Apple Card and Apple News+ in its enhanced service slate, the positive reaction the iPhone demand underscores that it's still an iPhone-centric world for Apple, and is valued accordingly. Apple currently trades at a forward P/E of 17.73, which is by far the lowest of the FAANG grouping.
At a discussion on Friday on Apple's valuation, Loup Ventures analyst Gene Munster made the case that Apple could eventually be valued more richly like a consumer staples company rather than as a hardware seller bound by product cycles.
"A lot of the people are buying the [iPhone 11] not because they wanted the features, but because they needed a new phone," Munster said, also making note of the very high loyalty of Apple customers.
"My hope is that investors will see the light and give it more of a Procter & Gamble multiple," Munster said, adding that at some point a "critical mass" of investors will reevaluate how Apple's stock ought to be valued. Procter & Gamble (PG) - Get Report currently sports a forward price-to-earnings multiple of almost 24.
"But if you take the approach that this is a hardware cycle, that will still be positive for investors," Munster noted.
News of robust iPhone demand was well-received by other analysts, with Wedbush analyst Dan Ives writing in a note on Friday that "Apple is seeing a very strong iPhone 11 demand trajectory and defying many skeptics that have been yelling fire in a crowded theater over the past few months."
And JPMorgan (JPM) - Get Report reiterated its "overweight" rating on the stock this week, raising its shipment volume forecast to around 44 million iPhones for the December quarter, and 63 million in the following quarter.
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