Following a survey that measured the impact of the Mac's ability to run Windows applications on the switch rate of Windows users, the analyst in June upgraded shares of Apple to a buy rating with a price target of $90.
"Subsequent events, most importantly stronger than anticipated growth in Mac shipments in June and September, indicate that our interpretation of the survey results that triggered our upgrade was conservative," he told clients in a research note issued Thursday morning.
Wolf said his new price target of $115 is based on a" more realistic reading of the switch rates among Windows users" that should ensue from the Macs ability to run Windows applications through Boot Camp under the upcoming Leopard operating system.
"We effectively assumed that no Windows users would switch in the absence of the Macs ability to run Windows," the analyst said of his survey analysis back in June. "Even then, our $90 price target was almost 60 percent higher than Apples share price at the time."
Wolf told clients he had not expected Apple's stock price to reach his $90 target until the company introduced Mac OS 10.5 featuring Boot Camp in the spring of 2007, but acknowledged that two quarters of upside revenue and earnings surprises helped it achieve the milestone much faster than he could have predicted.
"A key reason for the upside was stronger than anticipated Mac sales," he wrote. "Evidence that Windows switchers played an important role in the growth of Mac sales even before the introduction of Boot Camp indicated that our previous assumption -- that no Windows users would switch to a Mac in the absence of its ability to run Windows -- was unrealistic."
Under the analyst's revised valuation model, he employs the actual mean switch rates of Windows users rather than the increase in the mean switch rates. He assumed that the only Windows users who switched were those in the U.S. and European home markets -- which represent about 20 percent of the worldwide PC market.
"Our forecast has Apples share of these two markets increasing dramatically -- from 9 percent in 2006 to over 40 percent in 2016," he told clients. "A significant portion of the increase results from our plausible assumption that once they switch, a high percentage of Windows users will stay with the Mac platform when they subsequently upgrade."
Still, Wolf noted that only a third of Mac sales are generated in the U.S. and European home markets, adding that its likely the Windows-on-Mac effect will invade other segments of the worldwide market, most notably education and the small and medium business markets.
"A more accurate measure, then, of the iPod halo and Windows-on-Mac phenomena is Apples share of the worldwide PC market," he wrote. "This increases more realistically from 3.5 percent in 2007 to 8.3 percent in 2016, the last year in our forecast."