Thursday, January 21, 2010

Putting a Price Tag on Apple's Upside

By Eric Jackson
RealMoney Contributor

1/20/2010 4:01 PM EST

After a conversation with Gene Munster of Piper Jaffray, Henry Blodget has come out with a $1,000 price target on Apple (AAPL - commentary - Trade Now). Call it a current-day version of his $400-a-share Amazon (AMZN - commentary - Trade Now) call back in 1998.

The market liked the call on Tuesday, along with several analyst upgrades, good feelings about next week's Tablet announcement and the prospects of a solid earnings report on Monday. The stock was up 4% on Tuesday, to $215, and it closed Wednesday at $210.81.

We've known for a long time that Apple is not a valued on the basis of fundamentals alone. It has undergone a rapid expansion of revenue and operating profit in the last five years. In the 2004 holiday quarter, Apple reported top-line revenue of $3.5 billion with a net profit of 70 cents per diluted share. The consensus for Monday's earnings announcement is that the company will have a $12 billion quarter with net earnings of $2.05 per diluted share. That's progress.

Since Apple trades at a trailing P/E ratio of 34 (although this will drop later this year because of an accounting rule change in how iPhone revenue is recognized) and at $215 per share, which is beyond the $200 it reached in late 2007, some observers believe this stock is living beyond its means. They're wrong.

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