Firm ups Apple target, predicts enterprise moves in '07
Shares of Apple Computer rose over 3 percent to $75.32 on Monday after one investment research firm raised its price target on the Mac maker to $100 a share, saying significant catalysts will boost the company's revenue trajectory, earnings power and price valuation in the near term.
ThinkEquity Partners analyst Jonathan Hoopes told clients the Cupertino, Calif.-based Apple stands to benefit from "accelerated back-to-school CPU share gains," retail store traffic and beyond-the-box unit shipment momentum, software-related revenue and earnings upside surprises in the first half of 2007, and a move into the enterprise during the second half of 2007.
"Our checks indicate Apple's Back-To-School (BTS) season was healthy. Moreover, the new Beyond-the-Box (BtB) devices that were recently announced at Apple's 'It's Showtime' product event are expected to hit the shelves in time to drive increased visitor traffic through Apple's retail stores during the holiday selling season," the analyst wrote in a research note. "We believe Leopard and iLife software refreshes and the launch of iTV in early [calendar year 2007] and success in the enterprise later in '07 will boost revenues, increase earnings power, and expand valuation multiples."
Hoopes said Apple is positioned to meet or beat his fiscal fourth quarter earnings estimate of 48 cents a share on revenue growth of 25 percent year-over-year to $4.6 billion when it closes out the quarter later this month. "We are projecting Apple CPU unit shipment growth of 27 percent year-over-year in September," he wrote. "We firmly believe that Apple has passed through an inflection point, and we expect demand from 'switchers' to accelerate."
According to Hoopes, Apple may also benefit near-term from pent-up demand in thirsty European markets following the conclusion of the World Cup event. "We believe the distraction created by the FIFA World Cup soccer tournament -- with major purchasing power countries such as U.K., Germany, France and Italy playing through the final rounds -- will yield strong quarter-over-quarter growth in this region," he wrote.
Meanwhile, new product introductions such as the refreshed iPods and iTunes 7 movie downloads should help drive significant increases in retail store traffic during the holiday shopping season, the analyst said. He noted that Apple sold an average of 114 Mac systems per week in each of its retail stores during the June quarter, a 7 percent increase from the year before. For the September quarter, he predicts Apple will report a 31 percent quarterly increase in per-store Mac system sales, slightly higher than the 25 percent increase the company experienced between the June and September quarters in 2005.
During the first half of 2007, Apple will release a major operating system upgrade in Mac OS X 10.5 Leopard. Hoopes said recent improvements in iTunes and the impending iTV set-top box will likely serve as catalysts for Mac OS X users to upgrade to the new version.
"At Apple's Leopard preview event, management stated that the active Mac OS X user base is around 19 million large," he wrote. "Out 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, we 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."
Hoopes is forecasting Mac unit sales to increase 28 percent year-over-year in 2007, which is over 2 times the current projected PC market unit shipment growth rate of 12 percent. At the same time, he notes that IMS Research has forecast the worldwide set-top box market to grow at a six-year compounded annual growth rate of 13 percent to 200 million units by 2011, and that he expects Apple to be integral in this growth category starting with the launch of its iTV set-top box in the first quarter of 2007.
"Never in the history of the PC has a company been better positioned for share gains, in our view," Hoopes told his clients. "We encourage investors to focus their 'Look At The Core,' as we believe Apple's software holds the key to additional share gains and margin expansion."
The analyst reiterates a "Buy" rating on shares of the Mac maker.
ThinkEquity Partners analyst Jonathan Hoopes told clients the Cupertino, Calif.-based Apple stands to benefit from "accelerated back-to-school CPU share gains," retail store traffic and beyond-the-box unit shipment momentum, software-related revenue and earnings upside surprises in the first half of 2007, and a move into the enterprise during the second half of 2007.
"Our checks indicate Apple's Back-To-School (BTS) season was healthy. Moreover, the new Beyond-the-Box (BtB) devices that were recently announced at Apple's 'It's Showtime' product event are expected to hit the shelves in time to drive increased visitor traffic through Apple's retail stores during the holiday selling season," the analyst wrote in a research note. "We believe Leopard and iLife software refreshes and the launch of iTV in early [calendar year 2007] and success in the enterprise later in '07 will boost revenues, increase earnings power, and expand valuation multiples."
Hoopes said Apple is positioned to meet or beat his fiscal fourth quarter earnings estimate of 48 cents a share on revenue growth of 25 percent year-over-year to $4.6 billion when it closes out the quarter later this month. "We are projecting Apple CPU unit shipment growth of 27 percent year-over-year in September," he wrote. "We firmly believe that Apple has passed through an inflection point, and we expect demand from 'switchers' to accelerate."
According to Hoopes, Apple may also benefit near-term from pent-up demand in thirsty European markets following the conclusion of the World Cup event. "We believe the distraction created by the FIFA World Cup soccer tournament -- with major purchasing power countries such as U.K., Germany, France and Italy playing through the final rounds -- will yield strong quarter-over-quarter growth in this region," he wrote.
Meanwhile, new product introductions such as the refreshed iPods and iTunes 7 movie downloads should help drive significant increases in retail store traffic during the holiday shopping season, the analyst said. He noted that Apple sold an average of 114 Mac systems per week in each of its retail stores during the June quarter, a 7 percent increase from the year before. For the September quarter, he predicts Apple will report a 31 percent quarterly increase in per-store Mac system sales, slightly higher than the 25 percent increase the company experienced between the June and September quarters in 2005.
During the first half of 2007, Apple will release a major operating system upgrade in Mac OS X 10.5 Leopard. Hoopes said recent improvements in iTunes and the impending iTV set-top box will likely serve as catalysts for Mac OS X users to upgrade to the new version.
"At Apple's Leopard preview event, management stated that the active Mac OS X user base is around 19 million large," he wrote. "Out 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, we 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."
Hoopes is forecasting Mac unit sales to increase 28 percent year-over-year in 2007, which is over 2 times the current projected PC market unit shipment growth rate of 12 percent. At the same time, he notes that IMS Research has forecast the worldwide set-top box market to grow at a six-year compounded annual growth rate of 13 percent to 200 million units by 2011, and that he expects Apple to be integral in this growth category starting with the launch of its iTV set-top box in the first quarter of 2007.
"Never in the history of the PC has a company been better positioned for share gains, in our view," Hoopes told his clients. "We encourage investors to focus their 'Look At The Core,' as we believe Apple's software holds the key to additional share gains and margin expansion."
The analyst reiterates a "Buy" rating on shares of the Mac maker.
Comments
-Clive
And I do hope Apple wakes up to the enterprise. It's a bit tough to convince businesses that they could benefit from switching to a Macintosh platform, although many tasty things are already there, such as the ARD. More promotion on Apple's part wouldn't hurt.
An article that cites "enterprise" moves and then reveals no substance beyond Leopard and its accompanying iLife suite as reasons? Come on!
Yeah, it would have been nice if they repeated some of the comments from Computerworld's articles about that. Or from Infoworld.
iLife is a reason for enterprise to stay away.
An article that cites "enterprise" moves and then reveals no substance beyond Leopard and its accompanying iLife suite as reasons? Come on!
here are the factors that are at work:
1) BootCamp is unsupported beta software.
2) Once Leopard ships, BootCamp will be supported and drivers will be all there.
3) Parallels is still lacking many important features (USB2)
4) Many enterprise customers want VMWare's solution (also in beta)
5) Many enterprise customers are waiting for Vista to ship before making a buying decision.
"We firmly believe that Apple has passed through an inflection point, and we expect demand from 'switchers' to accelerate."
Wu, can you please confirm this?
"Our checks indicate Apple's Back-To-School (BTS) season was healthy. Moreover, the new Beyond-the-Box (BtB) devices that were recently announced at Apple's 'It's Showtime' product event are expected to hit the shelves in time to drive increased visitor traffic through Apple's retail stores during the holiday selling season," the analyst wrote in a research note.
BTS, BtB??? These analysts are all so... technical!
BTS, BtB??? These analysts are all so... technical!
don't forget the all-important WFB index (We Firmly Believe)
AI should hold an interview with Wu. He's quite a cult figure around here.
Great idea. The beatings will begin immediately.
BTS, BtB??? These analysts are all so... technical!
BTS...
B2B...
BSB...
...BS!
One question: what does the World Cup have to do with demand for Apple's products?
GREAT question!
A: Nothing.
See SpamSandwich's observation about "BS" above. Says it all.....
One question: what does the World Cup have to do with demand for Apple's products?
Yeah, I was a little confused by that comment, too. Unless millions of people in Europe really are so distracted by the World Cup that they put off everything else in their lives.
Any thoughts from the European crowd? We North Americans just don't get it...
Yeah, I was a little confused by that comment, too. Unless millions of people in Europe really are so distracted by the World Cup that they put off everything else in their lives.
Any thoughts from the European crowd? We North Americans just don't get it...
They are.
Assume that all major sports here are just one, and that the month leading up to the finals includes all of the hype, marketing, and attention that a situation like that would incur.
Also pretend that sports fans here are even more frenzied about it than fans here are. Pretend that that one monster event meant the reputation and entire national character was proven by your place in it. Pretend that rioting in the streets, with cars being set on fire, etc. occurred all over from it, and that you would have to ban fans from certain places because of their "hooligansisn".
Then you will have a small idea of just what it means.