Why Apple's Bet On A $1,000 Smartphone Will Likely Pay Off

Based on the poor performance of Apple Inc. AAPL as of late, some investors are likely worried that the company's $1,000 iPhone X model may be too pricey. But that isn't the case, at least according to Bank of America's Wamsi Mohan. The analyst maintains a Buy rating on Apple's stock with an unchanged $180 price target based on the assumption that Apple's decision to sell a $1,000 phone "can indeed pay off."

Apple has a good reputation of being able to convince smartphone users to migrate from lower priced phones to higher priced models, Mohan argued. Specifically, between 2014 and 2016, more consumers bought phones within a higher price brand. Moreover, sales of iPhone devices in the $400 to $499 range declined between 2014 and 2016, but sales of iPhone devices in the $500 to $599 range actually increased.

Also, the overall blended iPhone average selling price rose from $629 in 2012 to $671 in 2015, the analyst added. This trend of high iPhone ASP is expected to continue growing until at least 2019 and help boost Apple's overall higher gross profit dollars.

Finally, Apple's decision to also sell cheaper iPhone 8 and 8 Plus models will help the company "capture more market share" the lower price brands.

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