In a research note to clients obtained by The Mac Observer, Merrill Lynch analyst Steven Milunovich said that Apple could see a "significant share gain" for the Macintosh after Apple reported a 26% growth in Mac unit sales for the December quarter on Wednesday. Based on Appleis earnings report, the iPod Halo Effect, and possible continued growth of Mac sales, Mr. Milunovich increased his target price for AAPL to $85 per share, and increased earnings estimates.
Noting that there is "increasing evidence of the halo effect on CPUs," Mr. Milunovich said that Appleis CPU growth "could moderate to 15-20% the balance of the year, still a significant gain."
Mr. Milunovich also said that "Apple must keep the pressure on" in order to continue to grow both the company and the stock.
"So far, the company has surprised critics who thought Apple got lucky with the iPod," wrote Mr. Milunovich. "Appleis becoming more dominant in MP3 players as brand matters in the consumer world. The retail store strategy is working. Also, there is now evidence that Mac sales are benefiting though more proof points are needed. iPod is becoming the tail wagging the dog as seen with the branding of the Mac mini."
Mr. Milunovich would also like to see Apple continue to work in the consumer electronics space in order to "press its edge" with consumers. For instance, he said, Apple could perhaps release an entertainment server "which the Mac mini begins to look like with its S-video out to connect to TVs."
The bottom line, however, is that "Apple needs to keep filling out its line to meet rising expectations," he wrote.
Mr. Milunovich raised Appleis target price to $85 per share, which is a 14% premium over Dell "as Appleis earnings growth should be faster than Dellis."
Earnings estimates for fiscal 2005 were raised from $1.45 per share to $2.00 per share, while estimates for fiscal 2006 were increased from $1.80 per share to $2.50 per share. We are increasing our F2005 EPS estimate from $1.45 to $2.00 and F2006 from $1.80 to $2.50. For the current quarter, Mr. Milunovich is putting estimates at 43 cents, slightly ahead of Appleis 40 cents per share guidance.
As of this writing, Appleis stock is trading at $71.49, off its early morning highs, but still a gain of 6.03 (+9.21%), on heavy volume of 42 million shares trading hands.
Bryan Chaffin owns shares of Apple.