Analyst boosts stock target to $255

Most Street observers are seriously underestimating the amount of money the iPhone is generating for Apple, claims Societe Generale analyst Vicent Rech. Rech notes that while a number of analysts are accounting for Apple's two-year amortization of iPhone revenues, they are often ignoring profitability trends. Current gross margin on the iPhone is believed to be 60 percent, nearly double the 33 percent for the rest of Apple's businesses.

That makes the device extremely lucrative, potentially accounting for 28 percent of adjusted Apple revenues in 2009, and over 40 percent in 2012. If the iPhone's gross margin was to drop to 50 percent for whatever reason, it would still boost overall margin to 36 percent in FY09, and 39 percent in 2012, as a result of a changing product mix. Rech comments that even if Apple were to have sold no iPhones after June of this year, reported margin would still reach 37 percent in Q4, and hold flat at 36 percent for 2010 as a whole.

Street consensus is said to be calling for flat gross margins in the period between 2009 and 2011, which would in fact imply sharp drops in Mac and iPod profitability. This is unrealistic, Rech suggests.

The analyst is predicting adjusted EPS of $9.13 for FY09, $11.16 for FY10, and $13.38 for FY11. Reported EPS is meanwhile expected to be $5.42 in FY09, $7.92 in FY10 and $10.18 in FY11. The price target on Apple stock is being raised considerably, from $170 to $255.

by MacNN Staff