Apple to Hit $225?

Oct. 8.07 | About: Apple Inc. (AAPL)

Apple Inc (NASDAQ:AAPL) has had an incredible run throughout 2007. The stock was punished during the tempestous period of July and August when it cracked the $120 mark to hit $118. Since the Federal Reserve dropped the discount rate by 50 basis points on August 16th, the stock has rebounded to new highs.

The shares closed Friday at a new 52 week high of $161.45 and the company will announce its September 30th fiscal 4th quarter results on October 22nd. Consensus estimates call for revenues of $6 billion and earnings per share of $.83. The 'whisper" circuit has already moved the revenue line to $6.2-6.3 billion and earnings at $.87 or higher.

Fiscal year September 30, 2008 consensus calls for revenues of $29.7 billion and earnings per share at $4.48. I believe both numbers are going higher as Apple is in the midst of a major product upgrade cycle with the iPod and the Mac, and of course, the iPhone is just getting started. The iPhone unit sales will be the pleasant news as Apple recently upped production for calander 2007 from 3.6 million units to a minimum of 4.8 million units. The number was announced before any European or Asian deals have been struck.

The new iPod models are sleek and reviews are impressive. The installed base to sell into is now north of 110 million customers. The iPod is still a phenomenon and is not, according to many Apple insiders, cannabilizng the iPhone.

What the iPhone will do is give investors a comforting sense of visibility on forward numbers. Apple is recognizing the revenues from iPhone over 24 months, the length of the minimum AT&T contract commitment. Apple has also dropped the pricing from the retail level of $599 to $399. With apologies in tow from Steve Jobs and company, the public is flocking to the reduced price iPhone in droves.

The good new from the September quarter will be the "quiet" product, the new and improved Mac computer. Apple has been quietly gaining global market share of the PC market. The add-on software sales, at very high margins, will only fortify the September results and the upcoming new fiscal year.

The stock has been acting superbly these past two months and after the earnings conference call look for many analysts to move their price targets to $200 and higher. My price target is $200 and I am prepared to move it to $225.

I wrote a few months back that Apple will surpass IBM (NYSE:IBM)in market valuation. Currently Apple is at a market capitalization of $140 billion and IBM is at $158 billion. Apple will surpass IBM before the first quarter of 2008 is in the books, if not sooner.

Disclosure: none