“We’re downgrading Apple from Buy to Hold because the company’s share price has reached our revised price target of $61,” Needham & Co.’s Charles R. Wolf explains on Barron’s Online. “During the past year, in response to the introduction of breakthrough new iPods and Macs and outstanding financial results, we’ve doubled our price target. Increases in the share price followed closely behind. The risk in our downgrade is that the frenetic pace of innovation at Apple could present new opportunities, which could trigger an upgrade at a price that’s much higher than it is today.”
Wolf writes, “A constant stream of innovative new products led to a twofold increase in our price target in less than a year. In January, Apple introduced the Mac mini, the first-ever competitively priced Mac.”
MacDailyNews Take: “First-ever competitively priced Mac?” Based upon whose idea of “competitively-priced,” exactly? Macs have been “competitively-priced” for years before the Mac mini in our opinion.
Wolf continues, “In June, it announced that it would migrate the Macintosh from IBM processors to Intel processors beginning next year — a move that could accelerate Apple’s share gains in the personal computer market. In September, the company introduced the breakthrough iPod nano and followed it in October with the next generation Classic iPod with video-viewing capabilities.”
Wolf writes, “Apple’s resurgence since it introduced iTunes software for the Windows platform has transformed the company into a tech darling. Cumulative iPod sales reached 28 million in September since its introduction in 2001. Apple is dominating the online music market through the iTunes Music Store, launched in 2003. Competitors have effectively ceded the download market to Apple and are attempting to compete — unsuccessfully so far — with music subscription services.”
“Most importantly, Windows users are buying Macs in increasing numbers. We estimate that in the first three quarters of calendar 2005, over one million of them have purchased a Mac compared to our estimate of 500,000 for the entire calendar year. Clearly, the so-called halo is working. Windows users are also switching because of the growing epidemic of viruses infecting their PCs,” Wolf writes. “A frequently overlooked metric has been the performance of the Apple Stores. Visitors to the 124 Apple Stores opened at the end of fiscal 2005 topped 50 million. Weekly visitors per store were up 46% in fiscal 2005, while same-store sales grew 45%. Reflecting the accelerating migration of Windows users to the Mac platform, Macintosh sales in the stores registered a 45% sequential increase in September.
Wold writes, “Our valuation analysis indicates that the current price captures the opportunities that are visible today. New products and innovative strategies from Apple should keep coming. However, we can’t quantify them in our valuation model since we don’t know what they are. The risks in our downgrade stem from what we don’t know as well as the possibility that Windows users are migrating to the Mac platform at a far higher rate than we’ve modeled.”
Full article here.
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