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Thursday, September 07, 2006, 03:00 pm PT (06:00 pm ET)

Apple rallies on analyst's upbeat comments

Shares of Apple Computer rose to a 4-month high on Thursday after one Wall Street analyst raised his estimates for the Mac maker, saying the company is likely to announce a major move into the digital home next week.

In a research note released earlier in the day, UBS Investment Research analyst Ben Reitzes increases to his Apple estimates through the 2007 fiscal calendar year due to "a stronger than expected showing" of the company's new Mac line.

He said recent checks indicate that sales of MacBooks, iMacs, Mac Pros and MacBook Pros are "strong with momentum continuing into September." He also said the new iMac Core 2 Duo models "should support estimates into calendar year-end."

Reitzes, who also raised his price target on shares of Apple to $92, expects the Cupertino, Calif.-based company to earn $2.70 a share in fiscal 2007, based on 25 percent yearly revenue growth to $23.9 billion. In fiscal 2008, he is modeling earnings of $3.10 per share, based on 15 percent revenue growth to $27.43 billion.

The analyst is predicting that next Tuesday Apple will unveil a major move into the digital home that will carry the potential to multiply its revenue streams. "With a potential foray into digital entertainment, we believe that Apple can expand revenues into incremental video/film downloads, digital storage and portable media devices," he wrote. "Also, we believe the evolving ecosystem can lead to higher sales of Macs given OS X’s unique ability to bridge the digital divide in the home in conjunction with iTunes."

In addition to potential new iPod nanos and movie services expected at next week's special Apple "Showtime" event, Reitzes said he remains excited about other potential products through 2007 such as portable media players a cell phone.

Shares of Apple rose $2.77 or nearly 4 percent to close at 72.80 on the NASDAQ stock market.