Investors who have been clamoring for the next Apple (AAPL) mega-product may not have to wait much longer after all. The company, via a Reuters report on CNBC, looks to be launching a watch—widely dubbed ‘iWatch’-- at some point in October.
Taiwan’s Quanta Computer will start manufacturing of the long-awaited device in July and the company will account for the majority of the watch’s final assembly as well. Sources cited in the article claim that Apple’s watch will have a 2.5 inch screen that has both a touch interface and wireless charging abilities.
The real shocker is that the source said that Apple expects shipments of 50 million units within the first year of the product’s release, though that is obviously subject to change. This is especially true given that the company sold 71.1 million iPads in the last fiscal year, suggesting that these initial predictions for the watch are extremely optimistic to say the least.
Apple Stock in Focus
The news will take some heat off of Apple for the time being though, as many investors were starting to wonder when the next new product would come out from the tech giant. An Apple produced TV was rumored for quite some time, but appears as if Apple is focused on the wrist for the time being.
This shift to the watch may also go nicely with Apple’s recent focus on fitness and related apps. A watch, should it be able to keep track of various health statistics, would be a nice complement in this burgeoning slice of the market.
Additionally, the watch shows that Apple is finally moving beyond various financial engineering tactics—such as share buybacks and stock splits—and is getting back to its roots in order to grow its share price once more. While investors don’t really anticipate these buybacks or dividends to slowdown, it is nice to see that innovation is back in focus.
This innovation tilt is important right now because Apple’s earnings estimate revisions have been in rocky territory lately. Yes, many earnings estimates have been going higher over the past sixty days, but more recent estimates, such as those in the past week, have been trending lower, at least for the current year time frame.
As a result of this more mixed trend, Apple currently has a Zacks Rank #3 (hold) though is still poised to grow earnings by over 10% this year (year-over-year). it will be interesting to see if this pattern shifts as more details are revealed about the iWatch—such as the price point—and how many the company is realistically expecting to sell this year.
Other Stocks to Watch
While this is big news for Apple, a variety of other stocks could also be impacted by this news as well. Specifically companies in the watch making space may be looking at this recent event with worry.
After all, stocks in this space have survived the initial ‘smart watch’ scare pretty much unscathed, but the looming presence of Apple could change all that. This is especially true if millions of units are projected to be sold, heating up competition for consumers’ wrists and putting the pressure on watch stocks.
Companies in this space include Fossil (FOSL) and Movado Group (MOV), two stocks that have seen pretty similar trending over the past two years. Both of these stocks have surged in the trailing two year time frame- up at least 42%-- but have really struggled year-to-date.
Investors in either one need to pay close attention to the iWatch news and see how their stocks react to the developments. A good barometer here will be the earnings estimate revisions should analysts turn bearish on the prospects of either ahead of Apple’s foray into this already competitive space.
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Author is long FOSL
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