Analysts Mixed on Apple Stock's Future

Wall Street investment bank Bear Stearns in a research note last week predicted that sales of iPods will reach 10.5 million units during the second quarter. Though some have pulled back on estimates, Bear Stearns analyst Andrew Neff, who wrote the report, believes that iPod sales will beat Wall Street's consensus estimate of 9.5 million units sold this quarter.

Neff queried suppliers, who are reporting strong demand from end customers. Bear Stearns expects Apple's earnings per share to be US$2.25 for the fiscal year ending in September, and the stock's target price is $100 per share, Neff said. The price at midday on Tuesday was $67.73.

Mixed Opinions

Bear Stearns' opinion carries a lot of weight on Wall Street for sure, but other analysts see Apple's situation differently.

Jason Tillberg, who heads the paper asset division at investment group New York City Cash Flow, told MacNewsWorld he was bearish on Apple. "The market cap of Apple is a little over $58 billion now and that's a heavy premium to a company that has only a little over $8 billion in net tangible assets ... and estimated 2006 earnings of $1.690 billion, per the Value Line Investment Survey," said Tillberg.

The Cupertino, Calif.-based company, has, to be sure, had a great run in its share price, from as low as $6.40 per share to just under $70 today, he said. "The growth story from Apple is fantastic, but investors' earnings expectations are too high and investors would simply be overpaying for growth in my opinion," said Tillberg. "It's a terrific business that I'd love to own -- but just not at this price."

Still, others are more optimistic. "We are very positive on Apple," said Jim Fisher, senior portfolio manager at Univest National Bank & Trust Co., based in Souderton, Penn. "Steve Jobs is a one of a kind, and the company is performing very well."

Fisher said iPod sales will continue to be the primary driver of growth -- concurring with Bear Stearns. Even more interestingly, however, Fisher thinks that Apple's computer sales will "pick up." That's because of Apple's plan to enable Windows users to load their operating system on Mac computers, he said. "Apple owns only a small share of the PC business, so there is a lot of room for growth," said Fisher.

Broadening Partnerships

Warren West of Greentree Brokerage Services, based in Philadelphia, said that he is also very bullish on Apple, primarily because of its capacity for innovation. "The iPod and iPod nano both, in themselves, make the company particularly attractive," said West. "The competition for these devices, for the most part, have concentrated on the music play. However, both Apple devices have evolved into a much wider use by their audiences."

Even without considering the company's ingenuity, its existing products are "only beginning to take root," said West, who envisions an array of uses for the iPod products, in addition to music play. Some customers, he notes, are using iPods in medical schools, for students who wish to download the sound of an irregular heartbeat, for example, so they can learn to listen for it when they become doctors. Other doctors are transmitting medical imagery and downloading it in iPods, and walking around hospitals with it.

Third party developers are also accelerating their initiatives with Apple, raising the interest of Wall Street.

Coinstar this week, for instance, announced that users who have spare change in their pockets can use coin counting machines owned by the company to obtain eCertificates to use to purchase songs from iTunes to download onto their iPods -- with no fee for the coin counting.

An estimated $10.5 billion in spare change lies idle in the U.S. now -- enough to purchase 10 billion iTunes songs and fill 44 million iPods to capacity.