Morgan Stanley, Lehman Bros. Raise Target Price on Apple Stock

Morgan Stanley analyst Rebecca Runkle and Lehman Brothers analyst Harry Blount on Friday each issued research reports in which they raised their target prices for Appleis stock to US$90 and $78, respectively. Ms. Runkleis assessment was covered by an article at; The Mac Observer has put in a request for a copy of that report.

Mr. Blountis report, a copy of which was obtained by The Mac Observer, details substantial changes to his forecast for Appleis current fiscal quarter. He raised his iPod unit shipment forecast to 12.6 million from 8.7 million, although he did note: "Component supplier checks suggest shipments substantially higher than this level are unlikely."

With that increase, he upped Appleis December quarter revenue from $4.7 billion to $5.6 billion and increased EPS from $0.49 to $0.57. Mr. Blount acknowledged that he is now well above consensus Street estimates of $4.9 billion in revenue and $0.52 EPS. Looking ahead, his FY06 and FY07 numbers are $19.4 billion/$1.95 and $21.1 billion/$2.26.

In addition to strong iPod demand, Mr. Blount also cited Appleis recent cash deposit to secure NAND flash chip supplies as not only "confidence in existing business but also [a likely reflection of] new product directions (wireless)." To that end, he thinks Apple will eventually introduce new handheld devices that feature built-in Bluetooth and Wi-Fi connectivity. Among those could possibly be an Apple-designed cell phone that uses iTunes, although he doesnit foresee such a device being introduced before the second half of next year.

Appleis Computer Business

Looking at the computer side of Appleis business, the analyst said that he expects future iterations of the iMac to take advantage of Intelis VIIV technology, which features Quick Resume technology, a TV tuner, 5.1 Surround Sound and more. He also sees the PowerBook adopting Intelis upcoming Napa chips and thinks Apple will be one of the first companies to announce that, possibly at next monthis Macworld trade show in San Francisco.

Many analysts have discussed the "halo effect" from the iPodis success, which they hypothesize will help Appleis computer sales as Windows users are exposed to the platform and decide to switch. Mr. Blount, however, has long been skeptical of such a phenomenon, using the percentage of customers who walk into an Apple Store Genius Bar and purchase a PC as his barometer. He believes that is the best method for testing the halo effect because the Genius Bar employees are best-equipped to overcome the concerns of potential switchers.

A chart in Mr. Blountis report shows that figure spiking at 1.4% in March 2003 and declining after that, although a significant jump in the September quarter could signal a trend that he will continue to watch. Appleis recent hardware refreshes may have been the catalyst that put the switching trend back on track, he explained.

Regarding Appleis recent market share gains that have outstripped the rest of the PC industry, Mr. Blount noted that the introduction of the Mac mini may have more to do with that than the iPod halo effect. He believes that the data "is not yet conclusive" in that area, pointing to the Mac miniis price point as a possibly larger growth driver than the impact from switchers, although he did acknowledge that his analysis of the numbers shows "a modest halo effect" that has been overstated in its impact.

Mr. Blount has maintained his "2-Equal Weight" rating on Appleis stock, which means that itis expected to perform in line with the 12-month unweighted expected total return of the companies in that sector which Lehman covers.

At 3:46 PM EST on Friday, Apple shares were selling for $71.53, down 0.90% for the day. While the companyis stock has risen dramatically in price during the current quarter, stock downgrades issued on Wednesday by Bear Stearns and Banc of America have weighed heavily on it.