UBS Raises AAPL Target on Expected Mac Growth

by , 9:15 AM EST, December 17th, 2007

UBS analyst Ben Reitzes sees a strong year ahead for Apple's Macintosh lineup. So strong, in fact, that he raised his target price for the company's stock from US$220 to $235.

"We just completed surveys of well over 30 stores and Mac demand seems to be outpacing prior expectations. Even with prospects for a slowing economy, we believe Mac demand can keep going strong with new products that we have detected in the supply chain," he said. "Given higher margins for the 'Mac ecosystem,' including software, we are raising estimates."

Those "new products" likely include an ultra portable Mac, according to Mr. Reitzes. While he has been saying for over a year that Apple is probably developing an even more compact portable Mac, he thinks Macworld Expo 2008 may be when Apple finally lets this dream product see the light of day.

"We believe AAPL has been working on ultra-portables for quite awhile and that calendar 2008 could be the year this category finally explodes," he said. "We would not be surprised to see a very compelling ultra-portable device announced at Macworld and ship in [the first half of] calendar 2008. In fact, we believe there could be multiple products of this type in Apple's product pipeline over the next few years with possibly another to be announced by the end of 2008."

The Mac isn't the only driving force behind Apple's growth in 2008. The iPod and iPhone will continue to be strong sellers, and the company could see a another boost in popularity for its cell phone if it introduces a lower priced model -- something Mr. Reitzes thinks will happen in the first half of the year.

He commented "Should Apple introduce another lower-priced iPhone in the $200 to $250 range, we believe we could see another significant pop in unit sales not unlike what happened to the iPod when the mini was announced in 2004."

Another surprise Apple may have in store for next year is movie rentals. Mr. Reitzes thinks Apple may be working on deals with the studios to bring a pay-per-view type system to the iTunes Store. With movie rentals priced around $3 or $4, it could ad another boost -- and more products -- to the already popular media service.

Many studios have been reluctant to offer movies through Apple's service because of pressure from retailers like Wal-Mart and Target over fears that DVD prices will be undercut. A movie rental service, however, would sidestep the issue and could relieve the pressure studios are feeling. If so, we could see new iTunes partner announcements as early as Macworld Expo in January.

Mr. Reitzes is raising his EPS for Apple's first fiscal quarter from $1.47 up to $1.56 based on a 32.5 percent revenue growth to $9.42 billion. He is expecting iPod sales will grow 17 percent, and Mac sales will increase 40 percent year over year.

He is maintaining his "Buy" rating while raising Apple's target price to $235. Apple is currently trading in the pre-market at $191.32, up 0.93 (0.49%).

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