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What to Look For in Apple's Product Release

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On Wednesday, Apple (AAPL - Free Report) will hold a long-awaited media event at its Cupertino, CA headquarters to unveil the next generation of iPhones and other Apple products. These product releases have been a cornerstone of Apple’s marketing and investor relations strategies since the days of Steve Jobs and the public’s first ever look at an iPhone in 2007.

These media events also provide valuable insight into future because the new products introduced are often not available for sale until months after the official introduction and thus do not affect revenues and earnings in the current quarter, but anticipation of their likely demand will help shape estimates for the following year.

This is a particularly important event for Apple as they are expected to introduce an entre new line of iPhones - and iPhones currently make up more than 56% of Apple’s revenues. The release last year of the iPhone X was met with mixed reviews with its innovative features like an OLED screen and facial recognition, but also its equally innovative price of $999 – the most expensive phone ever.

The iPhone X has in fact sold very well even at $999, but current predictions are for a new line that incudes less expensive phones that will incorporate some of the unique features of the X, but at more affordable prices as well as an update of the flagship model with a larger screen.

Both Apple and Samsung have moved toward more expensive phones with enhanced features, recognizing that many customers are upgrading at a slower pace than they used to.

It’s worth noting that the official press invitation Apple sent out for Wednesday’s event did not specify that a new iPhone will be released, but September has traditionally been when phones have been announced and the illustration on the invitation appears to be a rendering of the profile of two new phones of varying sizes.

The “tech geek” press has been salivating over the rumors and possibilities since the invitations went out at the end of August.

Apple is also expected to introduce a 4th generation Watch with an edge to edge display, a larger screen and possibly even an EKG feature added to the heart-rate monitor. The Watch has been a steady if unspectacular product for Apple since its introduction in 2015, contributing less than 7% or revenues in the most recent quarter but acquiring a loyal group of tech-savvy devotees.

Finally, an updated iPad is expected that loses the “home” button on the front side, making way for a bigger screen without increasing the overall size of the device.

What Should Investors Look For?

Everyone loves new and improved gadgets and Apple has become the biggest company in the world by consistently delivering the best and newest, while retaining brand cache that allows them to sell new products at strong margins. The most important aspect of Wednesday’s presentation however will not necessarily be the products themselves, but rather analyst reactions in the form of revised revenue and earnings projections.

Thanks to 10 positive revisions over the past 60 days, Apple is currently a Zacks Ranks #1 (Strong Buy). In fiscal year 2019 – which begins after the current quarter – Apple is expected to earn $13.26/share on $272B in revenues.

If the investing community expects that the new products will drive increased sales, we’ll see those numbers increase even further in the days and weeks after the presentation. Even if the revenue figure stays relatively the same but the consensus earnings estimate increases, it will provide validation of Apple’s strategy to sell new products at higher retail prices and improving margins – a very healthy indicator for the company.

There’s bound to be some stock movement around the announcement on Wednesday, but this will be largely noise – just day traders fighting over a few pennies. Serious investors will keep an eye on the estimates after the event.

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