Piper Analyst Bumps AAPL Target to $235 on Accounting Rule Change

Piper Jaffray analyst Gene Munster sees the just approved accounting rule changes as a positive for Apple -- so much so that he raised is 12 month target price for the company's stock from US$186 up to $235. Accounting rule changes will let Apple account for iPhone sales in the quarter they happen instead of over a two year period.

The new accounting rules will also boost Apple's earnings per share by about 44 percent in 2009 and 48 percent in 2011, according to Fortune. Mr. Munster expects Apple will show EPS at $8.21 in 2009, up from $5.71 and $8.90 in 2011, up from $6.00.

The Financial Accounting Standards Board voted 5-0 to change an outdated accounting rule that forces companies like Apple to claim some product sales over time instead of the quarter where they happened. The change is good news for companies that have been forced to account for some revenue over several quarters.

"Before yesterday's ruling, any product that offered free upgrades to software and services installed on a device like an iPhone required subscription accounting (revenue deferred over eight quarters in the case of the iPhone and Apple TV)," Mr. Munster said. "While the value at the time of purchase as a percentage of the purchase price is debatable, we believe about 90 percent of the value of an iPhone is realized at the time of purchase. Under the previous rules, Apple was only allowed to recognize 12.5 percent (1/8th) of the revenue from each sale; under the new rules, the percentage will be decided on a case-by-case basis for each given product."

Mr. Munster raised his target price for Apple's stock from $186 to $235. Apple is currently trading at $184.05, down 1.45 (0.78%).