Apple to Hit $225?

Apple Inc (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 (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

Comments

[Tom B:]

"I wrote a few months back that Apple will surpass IBM (IBM)in market valuation. Currently Apple is at a market capitalization of $140 billion and IBM is at $158 billion"

That's a great milestone to point to. I enjoyed it very much when Apple passed Dell. Of course, the Big One, MSFT, at about 280 B market cap, won't be passed this calendar year, but I'm hopeful for late '08

2007 Oct 08 09:35 AM

[User 111714:]

Georges

I always find your column well crafted and full of insight that escapes your fellow bloggers who for some reason have no knowledge of the industry they write about.
Keep it up.

george

2007 Oct 08 11:56 AM

[omacvi:]

One correction. There are not 110 million iPod owners. I think it is closer to 30 million since most people own more than one.

2007 Oct 08 05:50 PM

[Stefan Wyler:]

I agree with omacvi. Lots of people buy more than one iPod, for example an iPod Classic for and an iPod Shuffle. Additionally, people who bought an iPod in 2001 may have purchased new iPods since. These are some of the reasons there is still room for growth for the iPod.

I enjoyed the reading, Sir. Finally someone who knows what he is talking about. I've read too many of those Todd Sulivan articles..

2007 Oct 08 08:17 PM

[Lord Farkward:]

Talking about Todd, I wonder why he still gets so much undeserved attention. He is obviously just trying to garner anything (let it be love or hate, but either way it's the two ends of the spectrum and he's not being factual in any of his articles... remember "AAPL won't sell 10 mil iPhones, here's why"?)

ignore all his posts/threads (don't even read them, let alone responding to them), boycott him, i'd say, and he'll learn soon enough that irresponsible blogging is not the way to go.

2007 Oct 08 11:49 PM

[User 111873:]

Very level headed review of AAPL's recent past results and future potential.

themadmini
Sydney, Australia

2007 Oct 08 10:09 PM

[kkehler:]

I liked watching AAPL pass 160 and hit 170 within a week. This stock has so much fire behind it. Today's pullback and maybe tomorrow is a good opportunity to add more long positions. Ive got plenty of rants on this stock www.everything-macs.co...

2007 Oct 11 06:12 PM

[betrachiaph...:]

Having had to rely on PCs because of ürofessional work with Autodesk products I am a necomer to Apple. A Mac will be my next computer once Autocad runs on Macs. Tobin Smith of Changewave also tragets 225. But yestrday was a horror with AAPL down $ 11 in a few minutes. This is the "new market" where uncontrolled hedge funds can cause havoc.

Graz, Austria

2007 Oct 12 05:15 AM