Slash LaneMerrill Lynch today updated its rating on shares of Apple Computer from Neutral to Buy with a price target of $72, saying the risk-to-reward ratio of the company's stock has recently improved.
In addition to increased confidence in the potential for Mac market share gains and waning iPod deceleration, Farmer believes the overhang from the company's stock options investigation is starting to diminish.
"Our sense has been that potential Apple shareholders were understandably hesitant to buy stock with the stock option timing investigation seemingly open ended," he told clients. "Although there is not yet definitive conclusion to the investigation and we offer no legal opinion on the substance of irregularities, we think the statement [...] by Apple management (that financial restatement is not anticipated) suggests risk is lower."
Farmer also said that while the potential for an iPod phone is not news, its financial impact is not part of consensus estimates. "The fact that management publicly alluded to it (albeit indirectly) on the conference call reinforces the possibility that its introduction could be near enough to influence consensus estimates within the next 12 months," he said.
With the mobile phone market set to possibly approach 1 billion units in 2008, the analyst believes every 1 percent share potentially captured by Apple could produce as much as $3B in incremental revenue, assuming Apple sells the phones for around $300.
"Cracking the phone business won’t be simple given the complexity of the business model and ecosystem but we see iTunes as a key asset that can create differentiation for consumers as phones and other mobile media devices (like iPods) converge over time," Farmer told clients.
Among the analyst's other top reasons to own shares of Apple are the imminent arrival of the company's strong back-to-school and holiday quarters, a nearly completed Intel transition, upcoming margin expansion and a shift in focus by the Street towards Apple's fiscal year 2008 (supporting valuation).
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26 Comments
Shares up 13.16% today, what the fuck!!
/apologies in advance for the foul language, but when I checked the shares that's what I said.
Is that a "good" WTF, or a "bad" WTF?
In my case, I was pretty happy about it. 8)
Apple dropped too much. There wasn't any good reason for it. The market tanked, and Apple tanked along with it. The lack of new iPods, which was unexpected, also had a part in that.
But this quarter looked good, so the stock is set to rise.
Yesterday, the Feds discussion about inflation helped to get a rise in the market, so that helped, and will continue to help.
I'm worried about how obsessed the analysts are with the Apple phone idea. I think it more likely Apple will not release a phone. Apple would have to come up with a revolutionary and ingenious system. The mobile phone market is beyond mature into saturated with companies introducing new ideas to it every day.
OTOH very few people are happy with their cell phone company or service, so I suppose there is room if Apple could improve on their shortcomings.
I agree with some of your sentiments. It just seems so unlikely that someone could come up with an idea innovative enough to make it worth making an iPhone. I suppose if anyone could do it, then it's Apple. But what I really hope is that they don't come out with anything UNLESS it really will be innovative and exciting. The whole idea of merging consumer electronics devices is flawed. It is so much easier to carry two devices than to deal with the increased comlexity of the user interface and decreased battery life of 2 devices in one.
However, I think Apple recognizes these problems and will only come out with something if they can overcome them. On the other hand, if we're looking at some kind of "smart phone" (can you say OS X CE? ) then there might be a good market for a bulkier Apple phone.