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Friday, July 20, 2007, 09:00 am PT (12:00 pm ET)

Firm sets whopping $205 price target on Apple shares

Piper Jaffray on Friday hiked its price target on shares of consumer electronics maker Apple Inc. to $205, explaining that a newly developed model for booked iPhone revenues reveals substantial upside to his 2009 calendar year earnings estimates.

"In 12 months, shares of Apple will be trading on calendar year 2009 (CY09) numbers and therefore we are using CY09 numbers to set our 12 month price target," analyst Gene Munster told clients. "While it is early to be using '09 numbers, we believe that as '09 comes into focus, investors will start to put numbers around Apple's booked revenue metric."

Munster's published CY09 per-share earnings estimate currently sits at $4.82, but the inclusion of both the booked revenue methodology and ATT revenue share would bump that guesstimate to $7.31 per share, he said.

"Applying a 28x multiple on $7.31 leads to a $205 price target," the analyst wrote. "Our target multiple of 28x is in line with the three-year average price/earnings multiple based on two-year forward earnings-per-share."

Munster emphasized that his revised target is based on Apple's ability to sell 45 million iPhone units in 2009 but has little to do with iPhone sales in 2007 and 2008.

"One thing we learned with the iPod is that when a device is game-changing, the demand will come," he advised clients. "However, it is difficult to predict the inflection point. For example, in December 2004, Street expectations for iPod ran wild with investors anticipating 8 million iPods, but Apple only sold 4.6 million. It was feared at the time that the iPod would never go mainstream."

The analyst added that the value of Apple shares 12 months from now will largely dependent on whether the Street believes the company can sell 45 million iPhones in 2009 for an average price of $330.

"Conversations with investors over the past month suggest awareness of potential for iPhone units is high, but awareness of potential resulting impact to earnings is low," he wrote. "If Apple can sell 45 million units in CY09, the earnings power and historical multiple ranges suggest our price target is reasonable."