Analyst: The Apple Story is Getting Stronger

Apple delivered six surprises to Wall Street expectations during its December quarter, according to American Technology Research senior analyst Shaw Wu, who believes the Cupertino-based company is still developing strength. "In typical Apple fashion, the company provided conservative guidance below consensus for the fifth quarter in a row to keep expectations in check," the analyst said. Apple wowed investors with $7.1 billion in revenue and $1.14 in earnings per share with all-time record highs well above raised views of $6.4 billion and $0.78. The company sold 21.1 million iPods, beating out expectations of 15-16 million units. Gross margin for Apple during its holiday quarter saw an upside of 31.2 percent over expectations of 28.5 percent, but Mac shipments of 1.61 million fell below Wall Street expectations of 1.75-1.8 million. "We believe the Street got ahead of itself in estimating Mac demand, which remains strong at 28 percent year over year growth," said Wu. American Technology Research reiterated its 'buy' rating and raised its price target to $115. "We believe Apple's competitive advantages and growth prospects remain among the strongest in large-cap technology," Wu said.

Despite slower-than-expected Mac sales, however, Apple managed to raise the average selling price of its Mac systems by 9 percent quarter over quarter to $1,501 -- the highest level in eight quarters. March quarter guidance was more conservative than expected at $4.8-4.9 billion and $0.54-0.56 over consensus at $5.2 billion and $0.60.

"In typical Apple fashion, [Apple] provided conservative guidance below consensus for the fifth quarter in a row to keep expectations in check," the analyst commented. "While we are moderating our March quarter view to $5.1 billion and $0.60 (from $5.2 billion and $0.63), we are raising our full-year estimates and price target due to our anticipation of higher margins."

American Technology Research is modeling $23.1 billion and $3.00 for fiscal year 2007, up from $22.9 billion and $2.85. The firm is modeling $28.2 billion and $3.60 for fiscal year 2008, up from $28.1 billion and $3.50.

"Our new 6-12 month price target is $115, based on a 27x multiple on our calendar year 2008 earnings per share of $3.74 + $13.43 in net cash."

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