ANALYSIS
Reasons Behind Apple Share-Price Surge

Recently, investment-banking house Piper Jaffray updated its coverage of Apple by raising its estimated earnings and price for Apple in fiscal years 2005 and 2006. Apple operates on a fiscal year that goes September to September.

Apple's recent stock surge -- nearly $4 over the last four weeks -- appears to have been a reaction to the popularity of its iPod and iPod Mini digital jukeboxes and its unveiling of its new AirPort Express, a plug-in router for wireless Internet and music streaming that has received kudos from industry analysts [Blane Warrene, "Apple Goes Airborne with AirPort Express" MacNewsWorld, June 7, 2004].

Cautious but Taking Notice

In a research note published on May 30th by Piper Jaffray senior research analyst Gene Munster, increased earnings per share estimates by six cents per share on assumed revenues of more than $8.5 billion in 2005, and 11 cents per share on an assumed $9.7 billion in 2006.

"While we have not changed our recommendation of 'market perform,' we do see the growth changes at Apple," Munster told MacNewsWorld.

A market-perform rating predicts a company's stock will follow the general movements of the overall stock market, usually looking over the next 12-month period.

For his part, Munster believes Apple's creation of an independent iPod hardware division at Apple reflects moves to attract non-Mac users.

"We expect the company to continue to shift more resources into non-Mac segments of the business, with an emphasis on consumer devices," Munster wrote in his research note.

Looking Back at Apple Stock

Apple initially went public on December 12, 1980, at $22 per share. Since then, it has split two-for-one twice, most recently in June 2000. These types of stock splits typically double the number of shares an investor owns at half the price.

According to research on CBS MarketWatch Monday, 18 analysts have given Apple stock a "buy" rating, while other analysts gave the stock "market perform" and "hold" ratings.

Apple currently has 380,041,984 shares outstanding and a market value of $11.4 billion.

An Experienced Perspective

In an interview with MacNewsWorld, a senior executive with one of the largest broker dealers in North America said Apple's stock has really made a major turnaround.

"[Apple's] moves with the G5 and iTunes have been going quite well," he said, asking that his name not be revealed. "Tech stocks in general have built a good foundation and have been doing well."

However, the executive cautioned that, while Apple has been a strong stock all year, he does not see it as a stock to buy right now, given what he called its "technical aspects."

"It may have been too big a run too quickly," he explained, after noting he currently does not own any Apple shares himself.

Market Correction

"It could see $33 or $34, but it is trading at 30 times earnings and projected at 40 times earning next year. That is an expensive stock," the executive continued. According to him, a market correction could send Apple's back to a range where he would recommend a buy -- around $26 or $28 perhaps.

"Look at the market this morning, [Apple's stock] is making a small correction. It is down 80 cents," he said.

The Outlook

The executive went on to say that he believes Apple is a solid company with positive media coverage and growth.

"As long it does not break down, it should remain a good stock," he concluded.

For Munster's part, he believes that Apple remains sensitive to the spending habits of its core customers.

"Apple is highly dependent on spending trends in the education, consumer and creative professional markets. Budgetary fluctuations in any of these markets can have a significant impact on Apple's revenue," Munster wrote.