updated 04:25 pm EST, Wed January 3, 2007
Dec quarter to see upside?
Strong momentum in iPod sales during the holiday shopping season combined with the possibility of new product announcements could create an upside to Apple's fourth quarter results, according to analyst Richard Farmer of Merrill Lynch. "Near term catalysts include Macworld on January 9th and December Quarter results on January 17th," the analyst added. "Our new 12 month price objective implies 29X our fiscal 2008 NOPAT/share plus an anticipated net cash position of $14 at the end of fiscal 2007." NPD data for the first three weeks of December suggests strong demand, spurring the firm to raise its December quarter iPod estimate from 15.5 million to 17 million units. Mac demand also appeared solid, according to Farmer, prompting the analyst to raise his earnings-per-share estimates from $6.3 billion at $0.77 cents to $6.5 billion at $0.81 cents, higher than Wall Street's consensus of $6.4 billion at $0.78 cents.
Merrill Lynch has raised its 12 month price objective on Apple shares from $88 to $102 based on slightly higher estimates, strong momentum in holiday iPod sales, adjustments for a higher market multiple, and acknowledgment of potential forthcoming product cycles in phones as well as the digital home markets.
Farmer also concluded that new findings related to Apple's stock options investigations are immaterial, remaining consistent with estimates from Apple's August 16th Risks of options irregularities at Apple report. The analyst added that the company's investigation concluded with historical restatements of a size insignificant to Merrill Lynch's original investment thesis.
"The investigation found no misconduct by current management. Though we believe the risk to Steve Jobs cannot be entirely eliminated, we believe the focus will return to fundamentals," Farmer said.