JP Morgan Raises Apple Estimates, Downplays Recent Concerns

The 10% hit shares of Apple have recently taken is "overdone" and the company remains an attractive investment, J.P. Morgan said in a research note sent to clients Monday. The firm also raised its March quarter, fiscal 2005, and fiscal 2005 estimates for Apple.

While concerns that new products from competitors could erode Appleis market share are not without merit, J.P. Morgan analyst Bill Shope pointed out that Appleis digital music business, both with the iPod and iTunes Music Store, "is protected by a unique blend of technical and legal barriers to entry which we believe will mitigate the recent moves by Appleis competitors in the space."

Additionally, Mr. Shope added that Appleis "overall performance is apparently defying normal seasonal pressures in the March quarter." Accordingly, J.P. Morgan raised its March quarter and full year estimates for Apple. The firm now expects Apple to post earnings of $0.24 per share on revenue of $3.23 billion for the quarter.

J.P. Morgan also raised its fiscal 2005 and 2006 earnings. The firm estimates fiscal 2005 EPS to come in at $1.15 on $13.57 billion in revenue, and fiscal 2006 EPS to be $1.24 on $15.28 billion in revenue.

For the March quarter, J.P. Morgan expects Apple will have shipped 2.35 million iPod shuffles. Stronger sales of Appleis high-margin PowerBook line will also contribute positively to earnings; the firm estimates Apple will have shipped 190,000 PowerBooks when the quarter closes.

"Apple trades at 32x our calendar 2006 EPS estimate, versus its five year average of 40x," Mr. Shope said. "With the structural pieces of Appleis model still in place and plenty of upside potential in coming quarters owing to new products, we believe considerable room remains for stock outperformance. We reiterate our Overweight rating on Apple shares."