At its annual September event Tuesday, Apple Inc. (Nasdaq: AAPL) unveiled the highly anticipated iPhone X, and there’s no denying how pivotal the device will be to the company’s success in the next year.
The 10th anniversary iPhone includes upgrades like facial-recognition unlocking and wireless charging. The basic model, at $999, is also the most expensive iPhone ever.
While Apple bears warn that consumers will have sticker shock at the $999 price tag, we believe the new iPhone will break previous sales records. And the iPhone isn’t the only reason we have such a bullish Apple stock prediction…
iPhone X Isn’t the Only Device Fueling Apple’s Strong Growth
The headlines all talked about iPhone X, but there was more to the annual celebration of all things Apple. The company also revealed a new Apple Watch and new Apple TV.
Apple Watch: The most important upgrade for the Series 3 Apple Watch is that it no longer needs to be tethered to an iPhone to access wireless data. It now has its own cellular chip. Apple claims it is also 70% faster, with “all-day battery life.”
These new features were demanded by customers and could jump-start sales that were merely adequate in 2017.
Apple TV: Apple’s set-top box will now support 4K resolution, which is four times as sharp as HD. Its processing chip is twice as fast, with a quadrupling of graphics performance.
That makes Apple TV a much better gaming device, and that should beef up its adoption by serious gamers. There is also deeper content, including live sports.
iPhone 8: Perhaps lost in the excitement of the iPhone X, the iPhone 8 was also released in 4.7-inch and 5.5-inch models. While this is more of an interim upgrade, similar to iPhone 6s models, it nonetheless should have a strong market in which to sell.
Aside from faster speed, more memory, and a better camera, the iPhone 8 now enables more robust augmented reality features, particularly for gaming (think Pokémon Go).
It also features wireless charging, and it is compatible with the Qi wireless charging standard, which many companies already have adopted.
At a starting price of $699, it fills the niche between current offering and the new iPhone X.
iPhone X: Aside from the hardware upgrades discussed above, this new flagship product combines the screen size of an iPhone Plus with a smaller, more ergonomic body size. It feels like the right size in your hand despite having larger screen.
And of course, facial recognition amps up the “cool factor” immensely.
But more important than any new feature is the fact that an overwhelming majority of iPhones being used today are older models. And that should lead to record iPhone sales in 2018…
Record Sales Are the Biggest Reason for Our Bullish Apple Stock Prediction
Aside from the usual bump each new model gets from devout followers lining up for the next new thing, the potential for widespread upgrades is huge. Roughly 81% of all iPhones in use today are iPhone 6s models or earlier. The iPhone 6 models, which debuted in 2014, comprise 30% of all iPhones in use.
For those who can’t stomach the high price tag of the iPhone X, there are two new models priced more reasonably. The iPhone 8 starts at $699, while the iPhone 8 Plus starts at $799. It means that, especially with the $999 iPhone X, the average selling price (ASP) of the iPhone is going to rise substantially. And that’s going to feed profits and boost earnings per share (EPS) over the next several quarters.
FactSet also estimates that iPhone unit sales will increase from 217 million this year to 247 million in 2018. At the higher ASP, that translates to a $30 billion increase in revenue year over year, good for about $10 billion more in profits.
Apple’s EPS will increase to $10.85 in 2018. Assuming the price-to-earnings ratio remains at about 18.3, where it is now, the Apple stock price will be $198.55. And that puts Apple’s market cap over $1 trillion.
And even if the iPhone sales fall a little short, Apple is also expected to continue to grow its very profitable services business, which itself is already the size of a Fortune 100 company.
According to Money Morning Chief Investment Strategist Keith Fitz-Gerald, we may not have to wait until 2018 to see Apple hit that $1 trillion market cap.
“I say Apple stock reaches $194 by the end of the year, because there is enough of a fan base for these iPhones,” Fitz-Gerald said on FOX Business Network this week.
— Money Morning Staff
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Source: Money Morning