Best Buy deal could add $400M to Apple's top line

In a research note released to clients on Thursday, Morgan Stanley analyst Rebecca Runkle compared the Cupertino, Calif.-based company's US retail store coverage to that of Best Buy's. She found that at a bare minimum, a full distribution partnership with the electronics retailer would add 100,000 new Mac sales and $160 million in annual revenue for Apple.

Runkle's analysis takes into account that some of Best Buy's 742 locations would wind up cannibalizing sales at existing Apple distribution points. On the other hand, the analyst notes that Apple has been successful in opening stores as close as a mile apart without signs of cannibalization.

"If we assume no cannibalization, Best Buy could represent roughly $400M of revenue and $0.05 earnings-per-share (EPS)," she wrote. "If successful, Apple may look to expand its market coverage at other US and international retailers (including Circuit City, which is the second largest US electronics retailer and currently does NOT carry Macs)."

Apple's Mac pilot program began this quarter in approximately six Best Buy retail stores , including four locations in Los Angeles, one in San Diego and another in Las Vegas. It employs staffers trained by Apple to sell an expanded line of Mac computers that include both Mac minis models, the low-end iMac (1.83 GHz/17-inch), all three MacBooks and the low-end MacBook Pro (15.4-inch/2.0 GHz).

According to Runkle, leveraging third party retailers will allow Apple to expand distribution beyond its 137 US retail locations and to better penetrate US consumers in middle income and lower population regions where the company is currently under-represented. In her comparison of Best Buy and Apple Retail stores, she found that 339 Best Buy locations did not overlap with an existing Apple store.

"To us, this implies any expansion of the Best Buy pilot could be highly additive to Apple’s current Mac revenue base," Runkle told clients. "Importantly, we do not assume Apple dilutes its brand by going after low-end, bargain consumers — but rather that it extends its presence into the mainstream market by leveraging 3rd party retailers and its current product line-up."

Also in her note to clients, the analyst said she continues to expect new iPod nano and Mac Pro products this Summer, as well as a new video iPod and potentially an operating system upgrade cycle in the Fall.

"If we combine [the Best Buy opportunity] with plans for International expansion, new product pipeline and an improving competitive position (full hardware + operating system updates by year-end), Apple is well positioned to outperform our group over the next several quarters," Runkle said.

The analyst maintains an "overweight" rating on the company's shares with a price target of $90.