Apple Stock Will Hit $205 On iPhone Strength - Piper

Today is an important day for Apple (NASDAQ:AAPL). Piper Jaffray is out with a call upping their target to $205 from $140, saying they have developed a model that includes iPhone booked revenue and AT&T revenue sharing that results in an additional $2.49 to their published CY09E EPS of $4.82 for total estimated EPS of $7.31.

Firm believes Apple and AT&T have an iPhone revenue sharing agreement. Although they do not know the details of the agreement, the firm estimates that AT&T gives Apple $3 per month (during the 24-mo. contract) for every customer using the required data plan and an additional $8 (total $11) for every new subscriber that transfers service to AT&T.

Piper emphasizes that their revised target is based on Apple's ability to do 45m iPhone units in CY09 and has little to do with iPhone sales in CY07 and CY08. One thing they learned with the iPod is that when a device is game-changing, the demand will come. However, it is difficult to predict the inflection point. For example, in December 2004, Street expectations for iPod ran wild with investors anticipating 8m iPods, but Apple only sold 4.6m. It was feared at the time that the iPod would never go mainstream.

Conversations with investors over the past month suggest awareness of potential for iPhone units is high, but awareness of potential resulting impact to earnings is low. If Apple can sell 45m units in CY09, the earnings power and historical multiple ranges suggest $205 price target is reasonable.

Notablecalls: This is the first above-$200 target on AAPL. The stock is in a strong uptrend and I think Piper's call will be greeted positively by traders this morning.

The call may be worth severals points of upside, as iPhone flow continues to be the main thing moving the stock. Be ready to pay up early on.

AAPL 1-yr chart:

Comments

[Hayweed]

If Apple sells 49 million phones in 2009 what happens to RImm, Palm and Motorola. Do their sales decline. Rimm has staked a lot of their growth on consumer phones which is not their market. As Apple is going after the high end consumer same as Rimm, doesn't Rimm earninigs estimates take a big hit.

[Dan Poarch]

Oh I don't know about that. What we're witnessing is the establishment of the consumer smartphone market. We're opening up a whole new world of thin internet devices. RIMM is the new PC, Apple is the new Apple. There will be give and take between the two, but this is a very new market, not a struggle for an existing one.

[davesmall]

RIMM's market cap is something like 12 or 13 times sales (as compared to Apple's 5 or 6 times). They've got to continue to turn in incredible results to justify that sort of premium stock price. Any little hiccup and the shorts will have their day in the sun.

[Partners inGrime]

After Apple's June quarter announcement, Piper looks like a genius.