Why Merrill Lynch Likes the Apple Watch but Sees Room for Improvements

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Some people are still undecided on the newest product from Apple Inc. (NASDAQ: AAPL), but Merrill Lynch is here to help with an evaluation of the Apple Watch and where the tech giant can grow with it. The firm has listed some of the more prominent features of the smartwatch and also where it can be improved.

Currently, Merrill Lynch is evaluating the Apple Watch after its first two weeks on the market. The firm has a Buy rating on Apple with a $145 price objective, and the Apple Watch has not done anything to change that rating or target, for the better or worse.

Merrill Lynch’s research team tried out the Apple Watch over the past two weeks and walked away largely positive, but also with a wish list of features. The convenience of not having to fish out the iPhone all the time was reported as a definite plus and the ease of viewing notifications is particularly compelling. They view the watch as another product that locks customers firmly to the Apple ecosystem over time.

The brokerage firm listed six features that stood out:

  • Notifications
  • Activity/workout apps
  • Passbook
  • Music/audio calls
  • Battery lasting all day
  • Maps

However, Merrill Lynch points out that there is room for improvement. First of all, the firm wants to see more responsiveness to third party apps and an easier set up that is less dependent on the iPhone. Secondly, Merrill Lynch sees a built-in GPS as a battery issue (obviously longer battery life is something to be desired for any device) but at the same time this would open the door to new location aware possibilities. Finally, the firm wants more health apps and sensors, and the ability to wirelessly charge the Apple Watch.

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According to Merrill Lynch’s investment thesis:

We rate Apple Buy on: 1) strong iPhone product cycle 2) development of new revenue sources like Apple Pay, Apple watch, home/health kit etc, and 3) optionality provided by a significant cash balance that can help accelerate innovation into new markets.

Shares of Apple were down 0.5% Friday morning, at $128.30 in a 52-week trading range of $83.63 to $134.54. The stock has a consensus analyst price target of $148.18, which is above Merrill Lynch’s price objective.