Does the iPhone XS Really Move Apple Stock Closer to $400?
Apple (NASDAQ:AAPL) launched its newest batch of iPhones on Sept. 12. The special event pushed Apple stock higher in the next day’s trading.
With that said, a $400 share price in AAPL stock within the next three years is a shoe-in, right?
Maybe, but the iPhone XS is not the vehicle to get Apple stock to the finish line … no matter how good the phone is.
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“The iPhone launch is really about the components and Apple’s ability to make custom processors. The iPhone guts are the real enhancement as Apple pulled off the first 7nm processor, the A12 Bionic. Multitasking is more fluid, and apps launch 30 percent faster,” ZDNet reported after the launch. “Apple said that the A12 Neural Engine can process 5 trillion operations per second.”
In the days and weeks ahead, I’m sure we’ll hear all about the pros and cons of Apple stock and what’s good and bad about the company’s new iPhones. In the meantime, I’ll stick with my tiny 4S that doesn’t get updates anymore. For me, it phones, text messages and handles emails just fine.
Apple Stock Analysts Were Mixed
Piper Jaffray sees a broader user base from this new generation of phones, which should increase revenues and profits. It recommends holding Apple stock for a number of years to benefit from the new phone cycle.
“A broader spectrum of choices for next gen form factor iPhones will drive unit upside vs. current consensus in FY19,” the company said. “Regarding iPhone ASP [average selling price], based on the new lineup, unit mix assumptions drive our ASP estimate higher, resulting in upwardly revised overall revenue and EPS for Apple in FY19E & ’20E.”
However, over at Goldman Sachs, analyst Rod Hall has lowered the company’s earnings forecast for AAPL stock.
“Apple rolled out new iPhones as expected but the new LCD ‘XR’ model was priced lower than we had thought likely,” Hall wrote in a note to clients. “This effectively obsoletes two iPhone 8/8+ SKUs in our opinion and drives us to reduce our ASP [average selling price] and earnings estimates, offset slightly by a higher unit forecast.”
It’s the Other Things That Matter
In July, I highlighted the five things Apple needs to do for AAPL stock to hit $400 within 36 months.
One of the things: The iPhone needs to continue to perform. I don’t see the iPhone XS hitting a grand slam, but I also don’t see it striking out, either.
Sales of the iPhone XS, iPhone XS Max and iPhone XR won’t win any awards, and they definitely won’t be the catalyst that gets Apple stock to $400 sooner rather than later, but they also won’t be responsible for slowing Apple’s momentum.
It’s the other products that can make a meaningful contribution to the speed at which the AAPL stock price doubles.
The Apple Watch
Nowhere in my list of five things Apple needs to do to reach $400 did I mention the Apple Watch. I’ve never taken the product seriously in a world full of smartphones. Who needs to carry two devices with you, even if one of them is attached to your wrist and hard to lose?
However, InvestorPlace contributors Brad Moon and Dana Blankenhorn, who understand technology far more than I do, have both been trumpeting the Apple Watch in recent articles, suggesting that perhaps the market potential is bigger than I imagined.
“The Watch is already crushing competitors, with Fitbit (NYSE:FIT) now worth under $1.5 billion, Samsung Electronics (OTCMKTS:SSNLF) years behind and Alphabet (NASDAQ:GOOGL) just now starting down a road Cook has been on for nearly five years,” Dana wrote Sept. 10.
“If you want to know where Apple stock’s next trillion dollars in market cap is coming from, this is it.”
As Dana suggests, forget the workout aspects of the Apple Watch, and focus on healthcare. As our population continues to age, devices that can save lives through early detection of diseases and conditions will be indispensable at almost any price.
The Bottom Line on AAPL Stock
I don’t believe, long-term, that Apple can continue to lead the pack when it comes to market cap if it doesn’t come up with some big revenue generators other than the iPhone.
That said, I still have confidence in Tim Cook to do whatever it takes to get to that point.
A $400 Apple stock price depends on it.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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