"We would buy Apple shares into year-end as market momentum and earnings upside drive the shares higher," analyst David Bailey advised clients, explaining that across-the-board strength in Macs should drive revenue, gross margin, and earnings upside versus Wall Street's consensus estimates for the company's recently-ended September quarter.
The analyst expects the iPhone and iPod will take a back seat to Mac when Apple announces its September quarter results on October 22, but remains confident that sales of the handhelds to meet his expectations of 810,000 iPhone units and 11.3 million iPod units.
"Better-than-expected component pricing, mostly in DRAM, and a richer mix of Macs -- including a rebound in Apple's commercial desktop (Mac Pro) on the back of the Adobe CS3 upgrade cycle should push gross margin to around 32 percent, 250 bps higher than the company's target," he wrote.
Along with his price target hike, Bailey also increased his revenue estimate for the quarter to $6.1 billion from $5.8 billion (compared to the company target of $5.7 billion and the Street's $6.0 billion) and his earnings-per-share forecast to $0.85 from $0.75 (compared to the company target of $0.65 and the Streets $0.83).
Looking ahead, the Goldman analyst believes Apple will undoubtedly remain characteristically conservative with its December quarter guidance, "probably providing targets below the Streets revenue forecast of $8.5 billion and earnings estimate of $1.35." He's currently forecasting the Cupertino-based firm to generate sales of $8.1 billion and per-share earnings of $1.31.
Bailey also told clients that the European launch of iPhone together with a seasonal jump in iPod sales after the recent line-up refresh should add to strong Mac sales in the December quarter.
"Although details are few at this point, we expect Apple to announce a new model of the iPhone, at least one new iPod and, with lesser conviction on our part, a sub-notebook at MacWorld on January 14," he added.
Shares of Apple rose $3.26 or 1.95 percent to $170.