Is Apple Going to $300?

Apple (AAPL) has been an incredible performer these past 18 months, but the best may be yet to come. I have moved my price target to $300 by year end 2008. For the record, I have moved my price target several times these past 12 months, starting at $85 and most recently at $225. So why $300?

The product cycles that Apple is enjoying are all in the early stages, from the iPod to the iPhone. The early adopter stage is still in play for the iPhone, while the iPod will have sold its 130 millionth unit this past Christmas season. The great aspect of the iPod is that it has been around since late 2002, and yet the customer base is still at about 40 million users. The global market size is one billion so its penetration rate is only at 4-5%.

The iPhone will sell at least 20 million units by year end 2008 and capture ongoing revenues as it participates in the AT&T (T) monthly charges. Of course, the iPod has the recurring revenue benefit from iTunes, which will soon announce its 3 billionth song sold.

The success of the new Mac is just starting. Apple's Leopard operating system is the talk of tech and Apple will see brilliant sales results over these next 3-4 years. It is taking market share from traditional PC stalwarts Dell Computer (DELL), IBM (IBM) and Hewlett-Packard Compaq (HPQ). The Mac sold 2.16 million units in the September quarter, about 400,000 units ahead of expectations. Again, it's just starting.

This takes us to the retail stores. With 197 retail stores globally, Apple has room to double its store base over the next 5 years. 2006 revenues per square foot were at $4400--the best of any American retailer---and this is suppose to be a technology company! 2007 numbers should be even better as the 2006 numbers did not include the iPhone nor the new Mac.

The Apple stores are inviting and user friendly. Tech geeks and non-geeks alike love the environment and friendly service of Apple's personnel.

I estimate Apple will earn $5.25 per share for fiscal year 2008 followed by $6.35 in fiscal 2009. Revenues for 2008 at $31.6 billion and $38.5 billion for 2009. Both of these estimates are bound to go higher as the recent Christmas season will be better than expected when Apple reports in late January 2008 the results of the December quarter.

I would not be surprised to see fiscal 2009 EPS raised to over $7 per share. With sustainable operating margins in the high teens which is amazing for a hardware technology maker, my price target is $300 for year end 2008.

Disclosure: Author has a long position in AAPL

Comments

[chanat:]

I've been following your AAPL posts for over a year now and still agree with your analysis. It seems in vogue to bash AAPL lately, not sure if it's the bring-down-the-top syndrome, but a lot seem reluctant to acknowledge the huge growth and technology revolution that Apple is behind. Meanwhile there seems to be a lovefest with RIMM and GOOG. We'll see, but my money is definitely with you. I predicted, to family and friends (!), that we'd see $200 by the end of Dec. and between $200 - $225 by the earnings conference in Jan 08. I think that estimate might be a little conservative in-light of the huge quarter that AAPL will post in Jan. I'm thinking between $215 - $235 now.

2007 Dec 27 04:44 AM

[NRW:]

Not sure that your the comment relating to taking share from IBM in relation to PC products is valid. IBM left the PC market (sold to Lenovo) about 2.5 years ago.

2007 Dec 27 08:23 AM

[Stefan Wyler:]

I agree, AAPL is definitely going to $300 and it is likely it will go much further than that. You've pointed out some of the most important things like the Mac gaining significant market share or extremely consumer friendly Apple Retail Stores. However, it seems like you missed the day when iTunes sold its 3 billionth song. They accomplished that back in July and they announced it right after they had reached that number. Expect at least 4 billion songs sold at Macworld, if not 5 billion.

macdailynews.com/index.../

2007 Dec 27 10:57 AM

[forest:]

What a laughable analysis. How about addressing valuation? We can all see that AAPL is doing great things in a lot of areas, but at what point does the stock price already reflect that? I think $300 is a little optimistic. Why should a company in very fickle and competitive end markets trade at more than 30 times EV/EBITDA?

5 billion songs by Macworld is also nothing but fanboy hype. Itunes has had major defections by Universal and NBC, how do you expect growth to accelerate when AAPL is losing content providers?

2007 Dec 28 12:42 AM

[TA:]

Agree with Forest, assuming they grow at 20% for the next 10 years it's way overvalued at $200 - at some point it will SLOW down

At best it's a $150 stock and that assumes it really does grow at 20% for the next 10 years without an issue along the way

Play the momentum and forget the analysis, just don't be the last guy out...

2007 Dec 28 01:01 AM

[Tom B:]

I think end of 2009 before 300 is hit. I'm holding my Apple at least until 25% domestic computer market share is hit, though-- 2-5 years, I figure.

2007 Dec 28 11:53 AM