Jefferies Comments on Apple (AAPL) Following iPhone Event; Sees Better Conversion Rate to 4S, Loves 'Siri'

October 5, 2011 8:56 AM EDT Send to a Friend
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Jefferies issued comments on Apple (Nasdaq: AAPL) following yesterday's iPhone event held at its headquarters in Cupertino, CA. Jefferies retained a Buy rating and $500 price target on the stock.

Jefferies said it originally expected Apple to launch a new iPhone 4, but got caught up in the hoopla of the Street and changed expectations to an iPhone 5. Regardless, Jefferies still believes that Apple is a solid play, and its view has not changed on the recent launch and news.

Jefferies believes the changes may be enough to cause current iPhone 3 and 3GS users to upgrade, and a lower-priced 3GS will drive volumes in emerging and pre-paid markets.

In prior analysis, Jefferies commented, "we estimated that the 3GS GM was 56% in CQ1. We noted that a low-cost iPhone at a $300 ASP, $180 all-in COGS, and 40% GM would add ~$1 of EPS for every 10M phones sold. Now we believe that the 3GS GM could have a ~45%, above the corporate average GM of 42% due to more aggressive cost concessions from suppliers and possibly a higher ASP."

On iPhone 4S, Jefferies notes the design remains the same, but improved performance should drive upgrades. The addition of Sprint (NYSE: S) as a carrier is also a positive for Apple, and China Telecom (NYSE: CHA) is expected to carry the device in the first-quarter of 2012. Also, Jefferies commented, "Apple's new Siri voice service (not demoed at WWDC) was also impressive and we see it as catalyst for travellers such as business users and prosumers."

Click here for more analyst color on Apple, or here for a ratings history.

Apple is trading 1.5 percent lower Wednesday morning.


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