Apple is widely expected to announced two new iPhones on Sept. 9, but speculation has also intensified following several reports Apple is working with payments companies Visa (V) , Mastercard (MA) and American Express (AXP) , which Reitzes believes could capture the attention of Apple's increasingly large customer base. "We look for the event to showcase larger iPhones with a set of key new features that could get the customer base more excited," Reitzes wrote in the note. "Aside from solid new hardware specs, we believe Apple could unveil a long-awaited payments offering, linking NFC to iBeacon technology, leveraging the company's vast trove of credit card information within iTunes." Reitzes rates Apple shares "overweight" with a $110 price target.
Apple shares were lower in early Thursday trading, off 0.29% to $98.94, following a 4.2% decline on Wednesday.
Apple CEO Timothy D. Cook has hinted the company could look into mobile payments, via TouchID, which was introduced on the iPhone 5s. "The mobile payments area in general is one that we've been intrigued with, and that was one of the thoughts behind Touch ID," Cook said on a Jan. 27 earnings call. "But we're not limiting ourselves just to that. So I don't have anything specific to announce today, but you can tell by looking at the demographics of our customers and the amount of commerce that goes through iOS devices vs. the competition that it's a big opportunity on the platform."
Apple's iTunes platform has more than 800 million accounts with credit cards linked to them, potentially making this a lucrative area for Apple. Forrester Research expects the U.S. mobile payments to reach $90 billion by 2017, indicating there is space for additional companies to enter the space.
As Apple moves into additional software and services, i.e. payments, shares could get a higher earnings multiple than are presently afforded to them. According to the report, payments-related companies trade at an average of 21 times 2015 earnings estimates, versus 12 times (excluding cash) for Apple. "If Apple can be viewed more as a payments enabler, accumulating data with the potential for multiple revenue streams, its multiple could benefit," Reitzes penned in the note.
The note comes one day after Pacific Crest Securities analyst Andy Hargreaves recommended taking profits going into the event, stating, "Unless next week's event details massive incremental profit opportunities, we are likely to downgrade AAPL's rating." However, Reitzes disagrees, stating that this "this cycle is obviously much bigger and more important than the last two - and shares could work well into CY15."
--Written by Chris Ciaccia in New York
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