How Apple Watch will boost earnings: Analyst

Some Apple bulls will surely be disappointed with the Apple Watch's debut, but the device will make a significant contribution where it matters most—earnings, Hudson's Square Research's Daniel Ernst told CNBC on Tuesday.

In a "Squawk Box" interview, Ernst said the smartwatch might contribute 5 to 10 percent to Apple's bottom line in its first fiscal year. And while it is hard to recommend the stock given how much the market is up over the last two years, he said there are few companies innovating at Apple's level.

"I just don't find another company that I feel that comfortable with, not even from a safety standpoint," he said. "This is not just defensive. They are growing. They're an inexpensive stock. They're doing all the right things for shareholders. I don't know what's not to love about it."

Ernst spoke a day after Apple CEO Tim Cook unveiled the company's first smartwatch, at an event in San Francisco. The stock closed Monday at $127.14. It was flat in premarket trading Tuesday. (Click here for the latest price.)

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Ernst said he is less concerned with whether Apple will reach a $1 billion market capitalization than whether the company's price-to-earnings ratio improves.

"The only thing that really matters for Apple is earnings growth. That's why they need new products," he said.

Apple is a good choice for investors who want to own a stock that issues a steady dividend and is exposed to tech, media and telecommunications and priced cheaper than the market, he said.

Apple by the numbers
Apple by the numbers   

Disappointment with initial Apple Watch sales figures could present buying opportunities for the stock, Ernst said.

About 10 percent of iPhone users—or roughly 30 million people—have a serious interest in buying an Apple Watch, according to a Raymond James survey. For every 10 million devices sold, the Apple Watch could add 25 to 40 cents to Apple's earnings per share on an annual basis, Tavis McCourt, managing director at Raymond James, told CNBC's "Squawk on the Street" on Monday.

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Cantor Fitzgerald expects about 9 percent of iPhone users to purchase an Apple Watch in the near term, the firm's Brian White told CNBC's "Squawk Alley" ahead of the launch. In the longer term, White sees that conversion rate ticking up to 18 percent—a figure he called conservative.

He noted that smartwatches are high-margin products. Cantor expects the Apple Watch to achieve gross profit margins of 54 percent.