Apple Inc. (AAPL) stock is on track to snap its latest record run as sentiment shifted again early Wednesday. The Apple Inc. (AAPL) FQ4 2017 earnings release is due after closing bell on Thursday, and it seems investors don’t know what to do: sell out before a miss or hold fast in hopes that the iPhone X will make up for what could be a rough print.
Meanwhile analysts continue to sing the same song, which is that the iPhone X is so amazing that the Apple Inc. (AAPL) FQ4 2017 earnings release just doesn’t matter.
Reviewers rave about iPhone X
Multiple firms issued notes highlighting the growing pile of rave reviews the iPhone X is receiving. Macquarie analyst Benjamin Schachter said in a note on Tuesday that so far, the reviews appear to justify the $1,000 price tag, but he also pointed out that the phone does have some problems.
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Generally, reviewers rave about the 5.8-inch OLED display, the cameras, the design and even the Animoji that come in iOS 11. Apple Inc. (AAPL) also updated the user interface, which will take some getting used to because the iPhone X lacks the Home button the previous models have. Schachter also said that the notch on the front where the camera lens sits is more noticeable when using the phone in landscape mode, although it blends in while in portrait mode.
One of the biggest areas reviewers seem to disagree on the iPhone X is Face ID, as some aren’t having any issues while others are having problems in some lighting conditions. On the plus side, the facial recognition appears to be secure because none have reported that they were able to trick Face ID.
Schachter said although he hasn’t been able to try out an iPhone X, the reviews support his bullish view on Apple Inc. (AAPL) stock. He predicts that the company will sell 245 million iPhones in fiscal 2018, a 13% year-over-year increase and 6% higher than the previous peak. As a point of reference, he pointed out that Apple Inc. (AAPL) managed to sell 216 million iPhones in the last 12 months even though the iPhone 7 was more of an incremental upgrade than a major one.
Apple Inc. (AAPL) stock valued as a luxury rather than tech name
Apple Inc. (AAPL) was generally already considered a luxury brand before the iPhone X, although now that the company is offering an even “more premium” premium smartphone, analysts are starting to consider whether the company should be valued like a luxury brand rather than a tech company. HSBC seems to have kicked off the conversation in a note early on Tuesday, but other analysts continued it afterward.
HSBC analyst Erwan Rambourg stated that Apple Inc. (AAPL) can learn a lot from luxury brands and argued that Apple Inc. (AAPL) stock should be valued like a luxury name rather than a tech company. He doesn’t feel that Samsung is the alternative to Apple Inc. (AAPL), especially for “a young up-and-coming Asian consumer.” Instead, he sees Apple Inc. (AAPL) as competing with Louis Vuitton, trips, expensive restaurants and cosmetic surgery based on price points. He also sees Apple Inc. (AAPL)’s so-called “town square” stores as “cathedral-like points of sales.”
We should point out that SVP Angela Ahrendts, a former Burberry executive, designed the town square concept for Apple Stores, so it comes as no surprise that Apple Inc. (AAPL)’s stores are taking on a luxury brand vibe. The simple fact that Apple Inc. (AAPL) selected her means that it has been angling for luxury brand status for years, and Rambourg feels that the company still has a long way to go.
He pointed out that Apple Inc. (AAPL) stock is undervalued versus the luxury space. His firm’s global luxury index is valued at 22.5 times 2018 PE, while Apple Inc. (AAPL) stock trades at about 15 times 2018 PE. Further, he said luxury’s forward PE has been rising, although the multiple on Apple Inc. (AAPL) stock has been holding steady for about the last three years.
Has Apple lost its cool?
Ultimately, he seems to think it would be good for the company if Wall Street view it as a luxury firm, but not everyone is convinced that being a luxury company would be a good thing for Apple Inc. (AAPL) stock. BK Asset Management told CNBC’s Trading Nation on Tuesday that he thinks the company has lost some of its edge. He feels Apple Inc. (AAPL) has become a “sell the news” story now, and he advises investors to think more about “feelings” than about “a number.” He argued that Wall Street seems more focused on a particular number, but in reality, much of the analyst commentary these days is focused on feelings and sentiment.
He feels Apple Inc. (AAPL) has “lost a lot of its cool” in the last two years and also noted that many problems with iOS 11 have been reported. He questions whether the iPhone X will become “that cool object” or rather, “an object of derision,” and he remains skeptical that demand will be high enough to satisfy Wall Street.
Rambourg also noted that being a luxury brand could be a double-edged sword for Apple Inc. (AAPL) stock. He noted that Nokia and BlackBerry both prove that dominant hardware brands have a shelf life, although he doesn’t see a risk for Apple Inc. (AAPL) to expire any time soon. He also noted that luxury brands diversify their product lines to hedge fashion risk or, in Apple Inc. (AAPL)’s case, “product obsolescence,” the very issue Wall Street is worried about with the iPhone.
After roaring to another record high at $169.94 early, Apple Inc. (AAPL) stock reversed course immediately on Wednesday, falling by as much as 1.38% to $166.71 during regular trading hours.