First Albany issues ‘buy’ rating for Apple, raises target to $44

“Analysts at First Albany issue a ‘buy’ rating on Apple Computers (AAPL.NAS). The target price has been raised from $35 to $44. In a research note published this morning, the analysts mention that the company is likely to report its 4Q04 EPS and iPod unit results ahead of the estimates of $0.18 and 1.25 billion, respectively. The performance of Apple Computer’s PowerMac/Book was robust during the quarter and the company witnessed substantial demand for its new G-5 iMacs, the analysts say,” reports.


  1. Apple is undervalued at this point, if you believe iPod sales will continue to increase at triple digit rates.

    1) Apple’s current market cap is $15 billion.

    2) The current P/E ratio is about 72.

    3) But Apple has $5 billion in cash, meaning the market is actually valuing Apple at $10 billion. Remember, Apple has ZERO debt.

    4) Apple had an income of $211 million last year, which is responsible for that high P/E ratio ($15 billion / $211 million = 72)

    5) With iPod sales going through the roof and the halo effect lifting Mac sales, it’s only a little stretch for Apple to reach $500 million in earnings for 2005. That means the P/E ratio will drop from 72 to 30 if the stock price remains the same.

    6) Of course, the market won’t let this happen. As the P/E ratio keeps dropping gradually over the course of the year, the market will continue pushing the stock price up in anticipation of the improving earnings outlook. The high P/E reflects the market’s confidence of future growth, and as long as there are no bad surprises, the P/E ratio should remain this high.

    Thus, if you believe Apple can earn $500 million for all of 2005, and Apple continues to grow the business like they have been doing for the past year, then we’re looking at a market cap of $35 billion or so, or more than double the current stock price.

    Do the analysis, and I think a $44 price target will end up being dramatically on the low side a year from now.

  2. i believe they only had one split – right before the burst. they did not want to the share price to seem over inflated – preception becomes reality. which was a smart move. the stock price took less a steep dive because it did not have far to go.

  3. looking at the current pace, if the share prices hit close $58, that will be about where they were at peak – factoring in the split.

    looking at it from a broader perspective, Apple is outperforming the entire industry alone, which makes sense considering the ride they are enjoying at the moment (G5, iPod, iMac, ITMS). Apple’s aggressive business stance during the downturn is paying dividends now!

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