Get Ready for Growth: Here’s How the iWatch May Impact Apple

Source: Thinkstock

Source: Thinkstock

With two highly anticipated larger screen iPhone models and a wrist-worn wearable tech device expected to be released by Apple (NASDAQ:AAPL) this fall, analysts have plenty of reasons to boost their price targets on the Cupertino-based company’s shares. In a recently issued note to investors obtained by Barron’s, Evercore Partners’ Rob Cihra boosted his price target on Apple shares to $115 from $100, based on the strong sales expected from both product categories. Before the split, Apple’s highest closing price was $702.10, or a little over $100 at the split-adjusted price. Evercore’s new price target would put Apple’s pre-split stock price above $800.

Like many analysts, Cihra believes that there is a “pent-up demand” for a larger screen iPhone that will drive an unusually high number of sales. Based on information provided by supply chain sources, most industry watchers believe that Apple is planning on releasing two larger iPhones with screen sizes of 4.7 inches and 5.5 inches. In his note, Cihra predicted that Apple will sell 58 million iPhones in the December quarter. This would surpass last year’s December quarter iPhone sales of 51 million units and set a new all time quarterly sales record for Apple. As noted by Cihra, this would also put Apple’s smartphone growth at 12 percent year-over-year, significantly higher than rival Samsung’s (SSNLF.PK) expected year-over-year growth rate of 6 percent.

However, in order to justify his relatively high price target on Apple shares, Cihra put a particular emphasis on the expected growth in Apple’s “accessories” category that will include the rumored iWatch. The Evercore analyst predicted that Apple’s accessories’ sales would grow to $11.28 billion in fiscal 2015, a year-over-year increase of 91 percent. It should be noted that most industry watchers believe that the iWatch will be launched in October of 2014, the beginning of Apple’s fiscal 2015.

“We currently model 5mil new iWatch/iBands priced $249 starting in the Dec-qtr (w/in Accessories), toward our first full-year est of 18mil units that is conservatively 1/2 of hoped-for builds but represents a 6 percent attach-rate to the iPhone’s 300mil installed base,” wrote Cihra in a note provided by Barron’s. “We model iWatch/iBand adding 2 percent to Apple revs but 10 percent attach rate + $299 price-tag could make it a 5 percent business.”

Besides sparking unprecedented growth in Apple’s previously slow-growing accessories category, Cihra also noted that the iWatch will likely increase the overall value of Apple’s ecosystem. “Either way we see it extending a growing Apple theme of ‘continuity’ across platform, a unique point of leverage off a closed-loop ecosystem,” wrote Cihra according to Barron’s. “This makes iOS devices more valuable to users (e.g., seamless functionality, ease of use) and developers (e.g., iOS per-user monetization/profitability consistently higher than Android’s), as well as sets stage for more secure services in e/mCommerce, advertising (leveraging Apple’s uniquely high-end demographic) and location (e.g., iBeacon.)”

According to various insider sources, Apple’s iWatch is expected to be equipped with multiple health monitoring and fitness tracking sensors that will feed data into the recently introduced HealthKit data repository. A recent note from UBS analyst Steven Milunovich suggested that a voice messaging function might also be a key feature of the wrist-worn device, reports Investor’s Business Daily.

While Cihra’s new $115 price target on Apple shares falls at the high-end of the spectrum, he is not the only analyst who has recently upped their price target on the iPhone maker. Credit Suisse analyst Kulbinder Garcha raised his price target to $96 from $85.71 for similar reasons last week, as noted by Barron’s. Shortly before that, JPMorgan analyst Rod Hall raised his price target to $108 from $89, according to a research note seen by AppleInsider.

Meanwhile, there are also indications that Apple will report solid numbers for its June quarter. In a recent note to investors, Wells Fargo analyst Maynard Um predicted that Apple would set a new June quarter iPhone sales record with 36.5 million units shipped. Apple will be announcing its fiscal third-quarter earnings results on July 22 after the market closes.

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