TMO Reports - Positive Piper Jaffray Research Note Pushes Apple Stock Higher

by , 12:45 PM EDT, August 15th, 2005

Despite a lackluster trading environment on Wall Street Monday, Piper Jaffray's bullish Apple research note helped send the company's stock up almost 4%. Analyst Gene Munster named Apple's stock his large-cap top pick for the remainder of 2005, based on the expectation of new product announcements over the next few months and the likelihood that Macintosh market share will continue to see gains.

Mr. Munster pointed to the upcoming Apple Expo in Paris, which will be held Sept. 20 to 24, and next January's Macworld San Francisco as two likely venues for new product announcements. He writes: "We believe likely product releases in CY05 [calendar year 2005] include: a higher capacity iPod shuffle or another form of flash-based iPod and a color screen iPod mini. We would see any of these products as catalysts for holiday sales."

The analyst also expects to see the iPod's "halo effect" continue to boost Macintosh market share improvements. "Small increases in share have material impact on numbers," he reminds his clients, adding that Mac market share has increased 0.2% during each of the past three quarters. The continuation of that pattern would bring Apple to 3.4% in 2006. He notes that reaching 3.0% would add $0.14 to Apple's EPS (earnings per share) while a jump to 3.5% would add $0.26 to EPS.

Looking at Apple's current quarter, which ends in September, Mr. Munster writes: "We expect to see continued evidence of iPod-to-Mac carryover due to back-to-school. We believe September guidance [from Apple] is conservative for two reasons: 1) the company has factored in a negative impact from a slowdown in the Mac segment due to the Apple/Intel partnership announcement; and 2) Apple has not seen a sequentially flat or down September quarter in 3 years."

Summing up his thoughts, Mr. Munster says: "Apple's domination in digital music is a critical piece to the story, but we do not believe iPod is the only growth avenue for the company. Indirectly, we expect iPod to continue to be a foundation for growth in other parts of Apple's business, and we expect that by the end of CY05 more than 35m iPods will have shipped, providing Apple with a greater scope of awareness for various products ('halo' effect)."

Mr. Munster continues to maintain his "Outperform" rating on Apple's stock, with a $52 52-week price target. At 12:41 PM EST, Apple shares were $47.91, up 3.93% for the day.

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