Merrill Lynch
Highlights:
• We believe CEO Steve Jobs may introduce a new
iMac at the Apple Worldwide Developers Conference
next week in San Francisco. The other Macs have
recently received updates; now it is iMac’s turn.
• Apple’s recent introduction of the iTunes Music Store
in the U.K., France, and Germany dovetails with the
iPod Mini going international in July. Expectations
were for a U.K.-only launch, so France and Germany
were a bit of a surprise.
• Apple continues to add products around the iPod. The
new AirPort Express allows iTunes music to be played
wirelessly on home stereos. Now it appears Apple
will be going after the automotive market in teaming
with Alpine and BMW.
• We are raising our iPod estimates slightly. We have
raised our unit estimates from 851,000 to 900,000 for
the June quarter and from 1.0 million to 1.1 million
for September. Our June EPS estimate remains at
$0.15 and September is raised a penny to $0.18.
• We also are raising out F2006 estimates from $8.88
billion in sales and $0.79 EPS to $9.02 billion and
$0.82 EPS. Our higher estimates are based on 14%
top line growth rather than 12%.
• We rate Apple a Buy and are increasing our price
objective from $32 to $39 per share. The $39 price
objective equates to an EV/Sales of 1.3X, between
Dell’s and HP’s ratios. Near term, we view Apple as
a momentum-driven stock depending on rising
earnings estimates.
• We think there is less chance for an upside surprise
this quarter than the next two. iPod Minis are still
only sold in the U.S., and European efforts are just
starting. Risks include the creative market not
upgrading, continued PC share loss, and increasing
iPod competition.
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