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Apple's new iPhones are likely to be more expensive than what Wall Street currently expects, a potential boost to the stock ahead of the company's upcoming product launch.
Bank of America Merrill Lynch reiterated its buy rating on the company Thursday, arguing that Apple's stock typically performs well ahead of big events and that the potential for higher iPhone average selling prices could usher in even more upside.
"iPhone pricing is likely higher than embedded in consensus," wrote Bank of America analyst Wamsi Mohan. "Although investor expectations are for some moderation in pricing for 2019 models, we expect Apple to continue to price the iPhones for value, which should drive upside to consensus estimates." Apple would expect customers to be willing to pay more for this new generation of devices with larger screens.
Apple, which is expected to unveil the latest generation of iPhone on Sept. 12, has gradually increased the price of its phones as sales volumes plateau, introducing new, high-end technologies to draw from its loyal user base.
The 41.3 million iPhones shipped during the third quarter was practically unchanged from the year-ago period, but the average selling price of $724 was a notable jump. The average price bump is likely because of the pricey iPhone X, which starts at $999 and includes a more expensive OLED display.
Shares are up nearly 17 percent in the last three months, and they ticked higher in premarket trading following the positive Bank of America note. But as of midday, they were down 1.5 percent.
The new lineup should buoy prices even higher.
Mohan expects the iPhone XS Plus at a starting price of $1,049, the iPhone XS at $999 and a new large-screen LCD version at $799. In total, the new prices are forecast to drive the "blended" iPhone average selling price up to $815 for fiscal 2019, implying wider margins for the company and better returns for investors.
"Shares may retreat a few percentage points the day after the event, but, in the past, shares have had positive price performance 60 days after," the analyst continued. "If perceived higher pricing is interpreted as a negative post event and the shares pull back, we would see that as a particularly attractive opportunity to buy the stock."
Aside from his optimism on iPhone pricing, Mohan said he will be waiting for any updates to Apple Watch, which could boost wearables revenue. His price target of $250 implies 10 percent upside from Wednesday's closing price.