Is Apple (AAPL) a 'Sell the News' or 'Buy the iWatch'?

All eyes are on Apple (NASDAQ: AAPL) today ahead of the company's highly-anticipated iPhone event at 1PM ET (10AM PT). The company is widely expected to introduce two bigger iPhone 6 models, one with a 4.7-inch screen and one with a 5.5-inch screen. In addition, the company is also expected to introduce an iWatch and a mobile payment system. While many expect a sell-the-news event for the stock, others suggest the introduction of an iWatch could change the equation.

In a detailed note to clients yesterday, Piper Jaffray analyst Gene Munster highlighted that Apple stock has traded down an average of 1.2% over the past 6 launches with a range of down 2.8% to up 0.4%.

On the other side of the trade, Bernstein's Toni Sacconaghi notes that while Apple normally under-performs following an iPhone event, the possibility of an iWatch launch (either coincident with the iPhone launch or thereafter) and a payments solution make the decision more difficult this time.

Another thing to watch for today is pricing of the new, larger iPhone models. While both iPhone models are expected to have a larger screen than the current 5S' 4.0" screen, Sacconaghi notes that reports suggest that only the larger phone will see a price increase. He brings up that when Apple last increased the size of the phone (from 3.5" to 4.0" with the iPhone 5) but maintained pricing, gross margins contracted materially, resulting in YoY EPS declines. "A price increase on only the 5.5" model could raise concerns about potential GM pressure near term," he said.

While many expect an iWatch, Sacconaghi said many things are not known about it. Most importantly, he said, is pricing given likely demand elasticity, and the aesthetics of the device, given their belief that most smart watches today have been distinctively unattractive. "While we believe that iWatch is not likely to be material for Apple's financials (likely <5% EPS accretive), we do believe that it is important in shaping investors' perceptions about innovation at the company, which could impact the stock's multiple," he said.

Apple is also widely expected to introduce a payments capability on its new iPhones and possibly the iWatch. "Consensus appears to expect that such a capability will likely have little to no-revenue impact to Apple, but will help strengthen the iOS ecosystem," he comments. "To us, a key question is whether Apple may be able to capture any associated revenue as an intermediary, and whether Apple's huge installed base and market presence has allowed it to create a step forward in the payments industry, a la iTunes in music."

Apple is up 0.77% to $99.12 in pre-open trade. Today's Apple iPhone event can be found live in just under 5 hours here.

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