Apple Inc (NASDAQ:AAPL) releases its third quarter results after the bell today, the day before it starts shipping its top-of-the-range new iPhone X.
The two events may possibly be connected; Apple has always been good at the publicity game, even when it was down on its uppers in the nineties.
READ: Apple stock rises as demand hots up for iPhone X
There have been concerns that the iPhone X is too expensive, but that's a bit like complaining that water is too wet.
Apple's key strength is being able to sell a product that is maybe 10% better than the competition – or often 10% worse than the competition – for 50% more to its millions of loyal fans.
It is as much a luxury brand as an electronic devices maker, argues HSBC.
“Recently, with an offensive retail strategy and in some cases comparable price points, Apple has competed with the likes of Louis Vuitton, Cartier or Prada, which made us raise the question: is Apple actually a luxury stock? Yes, as an alternative for consumers but no, not really on valuation,” the bank argues.
“Consumers are buying the spirit of the brand and the way it makes them feel about themselves and in society,” HSBC ventures.
READ: Apple hits new high after Piper Jaffray raises price target to US$200
The bank highlights the need for Apple to reduce its dependence on the iPhone, but given the strong demand for the iPhone X, the need is not a pressing one. Demand for this year's iPhone 8 was disappointing, but the suspicion that the “Appletons” were simply waiting for the more expensive model to come out underlines HSBC's point.
“Nokia and Blackberry are proof that there is a finite lifetime to dominant players in the brands hardware space and yes, Samsung and value-for-money competitors in China will be appealing for many consumers but we do not believe there is much risk on a medium-term view of Apple’s innovation machine stalling,” HSBC said.
Apple has a cash pile of US$261.5bn and it has been keen to invest some of that in expanding its interest in online TV; it has signaled its intention to invest US$1bn into original programming in 2018.
The bank rates the shares a 'buy' and has a target price of US$193; that's bullish versus the current stock price of US$169, but by no means outlandish, as at least three analysts have target prices of US$200 or more.
HSBC's argument is that the stock is expensive compared to the tech sector, but cheap if one regards the company as a luxury brand.
Meanwhile, Zachs Investment Research went against the flow and downgraded the stock to a 'hold' from 'buy' earlier this week.
“Apple 's results will continue to be driven by iPhones, and Services segment and will help the stock sustain momentum against S&P 500 going forward. This, along with the company's $1-billion investment for acquiring original content and its plan to break into film distribution market will further boost services’ revenues,” the research house said.
“Estimates remain stable ahead of the upcoming fourth quarter fiscal 2017 earnings release; however, the new iPhone X at $999 is quite pricey, particularly for markets like China and India. Moreover, intensifying competition from cheaper Chinese handset-makers cannot be ignored,” Zachs suggested.
READ: Apple may fail to meet immediate demand for iPhone X due to supply chain issues, says analyst
Wamsi Mohan at the Bank of America thinks Apple will probably report lower-than-expected iPhone average sales prices for the third quarter of the calendar year, but the pent-up demand for the iPhone X could quickly compensate for that in the coming months.
Apple has previously said that advance orders for the iPhone X have been “off the charts”.
Analysts will be interested to see how sales are going in the critical Chinese market, as there have been indications that Apple has been losing market share there to domestic brands.
Shares are up 0.73%