UBS analyst Maynard Um is expecting Apple will show strong holiday sales numbers and will see continued high demand for its product lineup through 2011, so he’s raising his 12-month target price for the company’s stock from US$365 up to $415.
“We believe Apple’s FY1Q11 was supported by a strong product line-up that included some of the most heavily gifted items during the holiday season (iPad, iPhone, iPod), as well as strong buzz & demand for MacBook Air,” Mr. Um said. “With strong demand for its products for most of the quarter, we believe Apple is in store to report a strong Q1.”
He added that holiday shoppers were drawn to the lower price points of the redesigned MacBook Air. Apple introduced 11- and 13-inch MacBook Air models in fall 2010 with a price point starting at $999.
“Though we believe this would normally result in lower overall Mac gross margin, potential warranty accrual reversals (90bps impact last quarter), component pricing tailwinds, and iPad cost improvements should more than offset mix shift,” he said.
Looking forward, Mr. Um expects the just announced CDMA iPhone 4 on Verizon’s network will improve Apple’s gross margin even more. Expect to see that offset some by the release of the second generation iPad, and then to rebound again once the fifth generation iPhone ships.
Along with his new $415 target price, Mr. Um is raising his revenue estimate up to $24.5 billion from $23.9 billion, and is bumping up his EPS from $5.14 to $5.40. Apple is currently trading at $344.80, up 0.38 (0.11%).