Wall Street Takes Sides Ahead of Apple Watch Event (AAPL)

They said the iPod was a waste of time... they said the iPhone was too late to market... they said why bother with the iPad ... and now they are saying the Apple Watch is just plain dumb.

Shares of Apple (NASDAQ: AAPL) are down 1.5% intra-day Thursday as concerns mount ahead of next week's Apple Watch event (March 9). Weakness in the stock today is in part related to comments from Deutsche Bank analyst Sherri Scribner. The analyst is positive on the new device but said the market is simply not big enough to drive meaningful upside.

The firm is modeling that Apple ships 17.6M Watches in 2015, and expect Apple’s attach rate to iPhones to approach 25% by 2018. Assuming an Watch ASP at $350, they estimate revenue from the Watch will be roughly $26B in 2018, which translates to
$1.00-$1.50 in EPS accretion.

While Scribner's is grabbing all the attention, as it jibes with Fast Company's recent headlines "You Guys Realize The Apple Watch Is Going To Flop, Right?", another analyst had much more positive things to say today.

BofA/Merrill Lynch's Lorraine Hutchinson expect the adoption of the Apple Watch to be faster in the first few years relative to other past new categories like the iPad, iPhone and iPod. While Deutsche Bank's Scribner sees just 17.6 million Watch units in 2015, Hutchinson sees about 23 million. That's 31% more! Hutchinson also sees this growing to 46 million units in 2016. To get to their numbers, BofA's Hutchinson assumes 6% of the users with iPhones capable of working with the Apple Watch adopt the Watch in 2015 and 9% in 2016. As of the fourth quarter of 2014, over 200 million iPhones could work with Apple Watch and they expect this number to grow to 400mn/500 million in 2015/2016.

The firm's bull-case scenario analysis suggests incremental AAPL stock price contribution of $5 by end of 2015 and about $12 by end of 2016.

Hutchinson said, "In the near term the iPhone, which contributes 63% of Apple’s revenue and 72% of gross profit, will remain the primary driver. However, as a new product, we believe the Apple Watch is set to gain significant share and define what people should expect of its competitor."

While Deutsche Bank is Hold-rated with a $110 price target. BofA is Buy-rated with a $140 price target.

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