TMO Reports - More Analysts Chime in on Apple's Outlook

by , 12:05 PM EST, January 11th, 2006

In light of Apple CEO Steve Jobs' Tuesday revelation that the company far exceeded Wall Street estimates for the fourth quarter of 2005, three more analysts have weighed in on the news and offered their revised outlooks. Piper Jaffray's Gene Munster said he expects the Mac to have the spotlight this year, UBS' Ben Reitzes bumped his 12-month target price from US$86 to $100, and American Technology Research's Shaw Wu increased his 12-month target price from $77 to $101.

Just after noon EST on Wednesday, Apple shares were selling for $83.52, up 3.29% for the day. The company's stock hit the $80 mark at the close of trading Tuesday, leaping about $4.00 on the strength of the fourth quarter numbers.

Gene Munster

Mr. Munster, surprised that Apple offered financial results a week before its scheduled earnings conference call, said that he expects the company to pick up even more computer market share this year "based primarily on the performance gains the company will be able to realize by incorporating Intel into the iBook and PowerBook (MacBook Pro)."

The analyst also expressed surprise over the lack of a new iPod shuffle, which many expected to see from Apple yesterday. However, Mr. Munster said that "we did not see the launch of a new iPod, or lack thereof, as a critical component to results in CY06. We believe it is still probable that at some point in the coming two to four quarters Apple will update the shuffle."

He also noted that Apple's introduction of an FM tuner for the iPod addressed "the number one reason why people may buy an MP3 player that is not an iPod."

Mr. Munster reiterated his "Outperform" rating on Apple's stock and kept his $80 12-month target price.

Ben Reitzes

In addition to increasing his 12-month target price for Apple's stock to $100, Mr. Reitzes upped his FY06 revenue and EPS estimates to $21.5 billion and $2.33 and his FY07 revenue and EPS estimates to $25.8 billion and $2.80. He wrote: "We are excited about the new Intel Macs & other software products announced at Macworld & believe that Apple continues to innovate & is set to announce several new products over 2006-- including a new media server, an Apple branded cell phone & additional media content."

Mr. Reitzes added: "While expectations ran extremely high heading into this keynote in terms of product possibilities, we believe Apple's performance in 1Q06 far outweighs any product announcements made (or not made) at the event -- and should drive momentum in shares. With that said, we are excited about prospects for the new Intel Macs."

The analyst agreed with Mr. Munster that a new iPod shuffle will likely be released later this year, and he added that he also expects Apple to release some kind of media hub running on Intel's Viiv processor, which offers built-in digital rights management. "Also, we still believe that Apple will launch a new video download service soon, so stay tuned," he wrote.

Addressing the numbers highlighted by Mr. Jobs, Mr. Reitzes expressed concern over the 1.25 million Macs sold last quarter, versus the 1.39 million he expected. He wrote: "We believe the company experienced a slight pause in anticipation of new products while executing a major channel inventory drawdown ahead of its transition to Intel ... [We] believe significant demand was pushed into 2Q & 3Q06 ... Apple's stock performs best when new products result in pent-up demand, creating perceived upside in future quarters."

He expects Apple to sell 5.36 million Macs in FY06 and another 6.71 million in FY07. He also sees the company moving 48.1 million and 61.7 million iPods during those fiscal years. Mr. Reitzes maintained his "Buy 2" rating on the stock.

Shaw Wu

Mr. Wu also left his "Buy" rating on Apple's stock intact. In addition to setting a new target price of $101, he upped his FY06 revenue and EPS estimates to $19.4 billion and $2.00 and his FY07 revenue and EPS estimates to $22.6 billion and $2.40. "We believe AAPL is well-positioned to continue above market growth rates with arguably the industry's most powerful and complete stack of hardware, software, and service," he wrote.

Like the other analysts, Mr. Wu was disappointed by the lack of a new iPod shuffle and the lower-than-expected Mac shipments last quarter. He had forecast 1.4 million Macs sold, but, like Mr. Reitzes, he reasoned that the miss "could be related to a reduction in inventory." He expects the new iMac, particularly the $1,299 model, will be a best-seller. "In our checks," he wrote, "comparable dual-core Windows PCs cost around $1500-2000, sometimes without a screen."

Addressing the new MacBook Pro, Mr. Wu sees pent-up demand for the new laptop "as professional and high-end users who wish to have the fastest mobile Mac without regard to cost." However, he thinks it's in Apple's best interests to ship an Intel iBook within one to two quarters as "there is some risk of delayed iBook purchases if customers wait to purchase an Intel version instead."

Mr. Wu also took a look at Microsoft's five-year agreement to keep developing Office for the Mac. He wrote: "We view this as a positive for both parties and may mean that "Numbers", the spreadsheet application we believe is under development at AAPL, may never see the light of day."