Morgan Stanley Sees Stronger Than Expected iPod Sales, Raises Apple EPS Estimates (AAPL)

Dec.19.05 | About: Apple Inc. (AAPL)

Morgan Stanley has updated their forecast of iPod sales this holiday season, noting that iPods are the #1 product consumers are buying this holiday, with more people buying iPods than cell phones. It also notes that consumers are shifting their demand toward the more expensive (and more capable, including video functions) iPods from simpler ones like the Shuffle. Morgan also notes that US iPod penetration is only 8% (and Mac penetration 5%), leaving lots of room for growth.

One factoid I thought was particularly interesting was that Morgan believes that the US retail market could tolerate 300 to 400 Apple stores to maximize consumer penetration. Apple currently has 135 stores.

Morgan has projected 2006 earnings of $2.07 and a share price target of $90. Those numbers are remarkably close to mine, although my iPod sales projection is lower because of supply constraints.

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