Monday, September 25, 2006

Calls of Note Part 1

- ThinkEquity believes significant catalysts on the horizon will boost revenue trajectory, enhance earnings power, and expand Apple Computer's (NASDAQ:AAPL) valuation multiple. These catalysts include: 1) additional accelerated back-to-school CPU share gains; 2) retail Store traffic and Beyond-the-Box unit shipment momentum through springtime; 3) software-related revenue and earnings upside surprises in CY1H07; and 4) a move into the enterprise in CY2H07. The firm believes investors will assign higher earnings multiples to AAPL shares as their thesis germinates. They are raising price target to $100 (from $90). This target reflects a 34x multiple on firm's CY08 EPS estimate of $2.94.

Firm's checks indicate Apple's Back-To-School (BTS) season was healthy. Moreover, the new Beyond-the-Box (BtB) devices are expected to hit the shelves in time to drive increased visitor traffic through Apple's retail stores during the holiday selling season. They believe Leopard and iLife software refreshes and the launch of iTV in early CY07 and success in the enterprise later in '07 will boost revenues, increase earnings power, and expand valuation multiples.

The Leopard OS (Mac OS X version 10.6) launch is scheduled for spring 2007. Thefirm believes recent improvements in iTunes and the impending iTV set-top box product launch will serve as catalysts for Mac OS X users to upgrade, in their opinion. They are forecasting Apple CPU unit shipments to increase 28% y/y in calendar 2007-a rate which is over 2x the current projected PC market unit shipment growth rate of 12% according to International Data Corporation (IDC). At Apple's Leopard preview event, management stated that the active Mac OS X user base is around 19 million large. Firm's analysis suggests that there is potential for up to $400 million (or over $0.40 per share) in contribution profits from Leopard in the 12 months after its release. However, they expect Apple to invest much of this financial bounty into marketing and R&D to drive additional PC share gains and accelerate the BtB product roadmap.

Never in the history of the PC, has a company been better positioned than Apple is at this time, to both gain share and improve profitability, in firm's opinion. They encourage investors to focus their 'Look At The Core' as they believe Apple's software holds the key to additional share gains and margin expansion. Reiterates BUY rating.

Notablecalls: Well, it's good to know BTS was healthy for AAPL. Yet, I don't see this coming as a surprise to anyone. Would not be surprised to see some interest in AAPL following the note but that's about it.

2 comments:

bulllover said...

Aapl in play strong today....read your's and others comments on AAPL and got in at 72+......77 and rising looking good. Cant find any print stating why except for tech market support as a whole.

Also jumped in on your comments regarding FORM and ENDO, both working nicely.

Just a brief note stating your comments are appreciated and read daily. Thanks again

notablecalls said...

Thank you. Always nice to have positive feedback :)