According to one Wall Street firm, the rollout of most expensive iPhone models of the tech giant this year will boost the profit of the smartphone. The smartphone making giant has upgraded its models because its iPhone X will ‘extract’ more profits from consumers.
Apple customers who buy the iPhone X are its most inelastic customers
Recently, the KeyBanc Capital Markets rose its rating on Apple shares from sector weight to overweight. Further, the firm predicted that the Cupertino-based smartphone company will report better-than-expected earnings in 2018. On Sunday, in a note to clients, analyst Andy Hargreaves said, “Apple’s introduction of iPhone X at a $999 entry price, its increase to iPhone 8/8+ prices, and its change to storage step-up pricing collectively represent a more aggressive strategy to segment its customer base and extract incremental gross profit from its users than we previously expected.”
After the report, the shares of the smartphone maker rose 0.9% in premarket session on Monday. Analyst Andy Hargreaves initiated a $187 price target on the shares of the tech giant. This represented a 19% upside to Friday’s close.
He wrote, “Apple’s most inelastic customers are likely to be the ones who look to purchase the iPhone X first. Assuming supply of iPhone X improves, this should create a favorable initial mix of iPhone X units that is likely to be favorable to investor sentiment over at least the next few quarters.” The analyst predicts that the fiscal 2018 iPhone gross profit margin and average selling price of the Cupertino-based smartphone maker will be 39.5% and $760 whereas the Wall Street consensus predicts the fiscal 2018 iPhone gross profit margin and average selling price of Apple will be 38.6% and $725, respectively.
Apple stock one of the best-performing large-cap stocks of the market
The analyst raised his estimate for the fiscal 2018 earnings of the company per share to $11.68 from $11.07 in comparison with the Street average of $11.03.
He wrote, “The potential for Apple to exercise greater pricing power, along with further App Store growth, supports the view of the Company as a franchise with subscription-like qualities rather than a regular hardware business.”
The Cupertino-based smartphone maker, despite recent volatility, is still one of the best-performing large-cap stocks of the market this year. The shares of the company have rallied 36% through Friday in comparison to the S&P 500’s 14% profit. On Nov. 3, the iPhone X will be available at a base model price of $999.