Citi ups Apple price target to $287 from $248 on iPhone 3G

Citi analyst Michael Rollins, in a note to clients today, said they remain aggressive buyers of AAPL shares at current levels. Apple’s decision to move from a revenue share
model to a traditional subsidy model for the 3G iPhone is a significant positive because Apple receives iPhone-related cash flow sooner. As a result, our free cash flow estimate increases by $2B for FY09 and our price target increases from $248 to $287.

Analysts also noted, “As expected, Steve Jobs unveiled a 3G version of iPhone during Monday’s Worldwide Developers’ Conference keynote. Hardware specs were generally in line with expectations while handset pricing was well below expectations. The biggest surprise was the speed with which Apple is abandoning the revenue sharing model in favor of a traditional subsidy model.”

Analyst Rollins believes that AT&T is paying Apple $220-270 more for the 3G iPhone than the NPV of all payments related to the original iPhone. AT&T obviously believes that
the higher upfront investment will pay off in higher subscriber adds, higher ARPU, and lower churn.

Citi is significantly raising their FY09 and FY10 free cash flow estimates from $7.4B and $8.9B to $9.3B and $10.2B, respectively, although there is little net impact to our above-consensus GAAP EPS estimates from the change in carrier model. The shift in carrier payments to the point of sale also boosts FY09 and FY10 revenue by $1.4-3.2B.

[Thanks to MacDailyNews Readers “Mike” and “Henri” for the heads up.]


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