UBS Analyst Raises AAPL Target to $133

by , 9:40 AM EDT, April 26th, 2007

UBS analyst Ben Reitzes raised his target price for Apple's stock from US$124 to $133 based on the company's strong second quarter performance, improved margins, and the likelihood that it will continue to maintain that momentum through the end of the year.

"We believe this earnings performance should effectively quiet bear arguments about Mac demand and iPod channel inventory," he said. "We believe shares can continue to surge into calendar year end on the back of new products. The thesis that Mac sales can surge is alive and well."

Demand for the Mac during the March quarter was robust, and combined with the sales of other Apple products, more than offset below estimate iPod sales.Apple reported 1.517 million Macs sold, well above UBS estimates. Factoring in potential new Mac products, the release of Adobe Creative Suite 3, and the release of Mac OS X 10.5 in October, Mr. Reitzes sees strong Mac growth through the second half of 2007.

Mr. Reitzes noted that Apple's plan to use subscription accounting for Apple TV and iPhone hardware sales may make quarterly sales number appear lower, but will boost the company's cash flow and smooth out long term revenue with the expected growth of the iPhone - potentially expanding Apple's P-E.

Mr. Reitzes feels the accounting method indicates that Apple is planning of offering some type of Apple TV subscription service. "The policy also shows Apple's intentions to begin to offer an exciting new content subscription service for iTunes for Apple TV and the iPhone, which we should hear about shortly. We believe this service could make Apple TV much more popular, much like iTunes did for the iPod," he said.

Whether or not he is correct remains to be seen, but Apple has historically been against subscription-based services preferring instead the pay-per-download model that has proven to be successful for the iTunes Store.

Mr. Reitzes is maintaining his "Buy" rating for Apple stock. Apple is currently trading in the pre-market at $102.60, up 7.252 (7.61%).

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