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Apple’s Fiscal 2Q15 Reflects Innovation: Apple Pay, Apple Watch

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Best Buy to support Apple Pay in 2H15

As discussed in our article Best Buy Will Support Apple Pay in 2H15, during its fiscal 2Q15 earnings call, Apple’s (AAPL) management noted that Best Buy (BBY) will start supporting the Apple Pay service at its retail outlets across the US. Consumers can use Apple Pay at Best Buy stores starting in the second half of 2015, after Best Buy’s exclusivity contract agreement with MCX expires.

MCX is a group of about 45 retailers that launched a mobile payment service called CurrentC. In addition to Best Buy, it includes other large retailers such as Walmart (WMT) and Rite Aid (RAD). MCX previously promised to not support other payment services such as Apple Pay, allowing it to avoid paying credit card fees to companies such as Visa (V) with every transaction.

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Arrival of the Apple Watch generation

On March 2, 2015, the results of a survey conducted by Fortune appeared on the magazine’s website. The results indicated that projected Apple Watch sales for 2015 ranged from 8 million–41 million units, with an average of 22.47 million units. The research firm Strategy Analytics expects the market for wearables to be “ignited” with the launch of the Apple Watch. Customers can connect the device to their iPhones and use a wide range of apps, especially those related to fitness and health.

The Apple Watch would face stiff competition from existing products in the market, including the LG G Watch R and the Motorola Moto 360, powered by the Google (GOOG) Android Wear platform. The Samsung Gear S is another major contender in the smartwatch market. However, AAPL’s ubiquitous brand name and its large universe of apps are likely to ensure healthy sales for the Apple Watch.

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Apple’s performance compared to benchmarks

As evident from the table below, Apple has been delivering a solid performance so far in 2015, relative to both indexes and ETFs such as the Technology Select Sector SPDF Fund (XLK). This is due to the company’s ability to deliver high-quality and in-demand products to customers and value to the company’s shareholders.

As discussed in Part 1 of this series, activist investor Carl Icahn considers Apple’s stock to be undervalued. Icahn believes that Apple should be valued at a price-to-earnings ratio of at least 20x, which roughly translates to a share price of $216 today.

Given the pioneering nature of its business, there is a risk that certain endeavors of the firm may not materialize as planned. For instance, the company has admitted that its iPhone 6 Plus range of phones and the Macintosh are eating into the sales of its iPad tablets.

Apple has launched the Watch’s online sales initiative, including pre-orders for the early adopters. Apple Watch sales would be crucial to propel the company’s share price up. However, given the adoption of the company’s premium products in emerging markets, there is probably a justification in the bullish stance adopted by Icahn in the company.

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