Monday, April 05, 2010

Apple (NASDAQ:AAPL): Core Strength and Inclusion of iPad Boost Estimates

Lot's of positive analyst comments on Apple (NASDAQ:AAPL) following a stronger-than-expected iPad launch:

- Deutsche Bank raises their tgt on AAPL to $325 (prev. $250) after they conducted a series of channel checks over the weekend where they found very strong demand for the newly released iPad. Firm says they called and visited over 60 stores (50 Apple retail stores and 10+ Best Buy) and found that despite the strong demand, Apple retail stores had ample supply (< 5% stocked out) while Best Buy stock-outs were more common (~70%). In addition, Apple retail stores that were stocked-out expected to receive additional supply in the next 24-48 hours but restocking at Best Buys stores was less predictable (averaged ~ 2-3 days). Deutsche believes Apple experienced strong demand for all three capacity iPads with customers expressing a slight preference for the higher capacity options (32 and 64 GB) and online shipping times remain elongated by ~10 days reflecting robust iPad demand. Looking forward they expect the Wi-Fi + 3G models in late April and international expansion (Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and the UK) to support continued robust demand. In conjunction with the iPad checks their supply chain checks point to very strong results for AAPL in the March Q, particularly for the iPhone (European). These checks, in combination with greater than anticipated iPad demand lead the firm to raise their AAPL estimates for CY10 to revs of $61.7B and EPS of $13.50 (vs. prior $56.6B/$12.20) and CY11 to $71.6B/$16.00 (vs. prior $65.8B/$14.62). Firm also raises their price target to $325 (Prev. $250) which assumes AAPL trades at 16x CY11E EPS ex cash (or 15x CY11E EV/FCF). Looking forward, they expect investor focus to shift to Macs and iPhone refreshes over the next several months which are the primary drivers of Apple’s earnings power.

- J.P. Morgan raises their target to $305 (prev. $240) noting key drivers are stronger Mac and iPhone unit assumptions and the incorporation of our first take at the iPad contribution. They believe the iPad is a decent first step in a new category, but critical mass likely depends on future product generations overcoming current feature limitations. In the interim, though, the Apple faithful and the early adopters should help the iPad beat subdued investor expectations. Also, they expect the iPad’s margins to be accretive from the onset. Firm's revised revenue and EPS estimates are $13.270 billion and $2.85, versus $12.133 billion and $2.54 previously. The Street consensus is at $12.564 billion and $2.57.

Apple is a growth story with increasing momentum. JPM's revised estimates and price target highlight Apple’s potential for a series of beat-and-raises. They believe this prospect stands to attract incremental buyers of the stock in the near to midterm. For Apple, their new revenue and EPS growth assumptions for F2010 eclipse 30% and set a high bar, but they think the trend-line is setting the stage for mid-teens growth in F2011 as a base case.

- Piper Jaffray's Gene Munster raises his tgt on AAPL to $289 (prev. $284) noting he is raising his iPad unit estimates for the launch day (from 200-300k to 600-700k) and the June-10 quarter (from 900k to 1.8m) following Piper's survey of 448 iPad buyers. Lines were longer than expected and supply was also better than expected, which increases his confidence in iPad unit sales. He is incrementally more confident in the iPad as an investable theme, reiterate his Overweight rating.

Piper's survey indicated that the iPad is thus far not seriously cannibalizing other Apple products, but may be taking some Kindle sales away from Amazon.

Notablecalls: So the estimates and price targets keep raising. Deutsche's $325 tgt is now the new Street high, surpassing Credit Suisse's $300 target just 10 days ago.

The stock is likely to trade towards the $240 level this morning.

The est/tgt bumps are feeding the buying frenzy for today but I must ask - is this how good it's going to get in the n-t?

Are there any catalysts left here? Yes, results are scheduled for April 21, but with several firms already calling for a monster quarter and the stock up 30-40 pts since March, is there much upside left there?

Recall, that Apple has tendency to rally ahead of catalysts and sell off after they have materialized.

But these are problems of tomorrow, not today.

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