S&P Keeps Apple at Hold; iPod Reliance a "Risk"

Stock in Apple Computer (AAPL) is worth buying and holding as long as investors realize revenue growth of the iPod has peaked and will slow down in the next 12 months, predicted Standard & Pooris analyst Megan Graham-Hackett in a report dated February 5 and obtained Friday by The Mac Observer.

"We remain concerned about the stock regarding iPod sales growth potentially peaking, and valuation, as the shares trade at a premium to peers on both an enterprise value/sales basis and PE basis," she wrote to clients. "However, we think the opportunity to leverage iPod success into new markets make the shares worth holding."

Ms. Graham-Hackett said she believes Appleis reliance on the iPod line introduces "risk", that revenue growth will "decelerate over the next year", but that Appleis "revenue growth (will) remain above (its) peers over the next 12 months, reflecting the iPodis success and the potential for Apple to enter new markets leveraging that success."

S&P is targeting Appleis stock price to be in the US$80 range in the next year -- about the same as it is at the current time. The analyst company is predicting revenue growth of 55% for Apple in the current fiscal year, gross margins to remain flat at around 27%, and earnings per share for the year of $2.00, up from $0.81 in 2004.

In announcing todayis two-for-one stock split of Apple stock, Ms. Graham-Hackett said Friday it was "expected" and that her original thoughts and concerns remain the same.

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