Sanford Bernstein Raises Estimates on Apple Computer

Sanford Bernstein's Vadim Zlotnikov has taken a shine to Apple (AAPL), raising his third-quarter and full-year earnings estimates above Wall Street's consensus due to strong notebook sales. The analyst kept the company at market perform, however, citing the uncertain long-term outlook.

"Recent channel surveys indicate strong initial iBook sales and continued success of Power Book, consistent with overall strength in notebooks. Notebooks should drive 60% of Apple's sequential revenue growth," Zlotnikov wrote. As a result, the analyst took his third-quarter earnings target up to 17 cents a share and his 2001 estimate to a loss of 21 cents. The analyst didn't reveal his previous estimates. Sixteen analysts expect the company to make 15 cents a share in the third quarter and lose 23 cents for the full year, according to Thomson Financial/First Call.

Circuit City will help Apple sell more notebooks, the analyst reasoned, because the chain has only recently started pushing the new iBook computers after finally burning off older inventory. And other sellers like CompUSA are carrying the full line of Apple products -- something that will also help the company sell notebooks. Zlotnikov said that results are already showing in other areas, with the Power Mac gaining marginal desktop share.

That said, Apple could face some difficulties. For starters, the PC world is currently engaged in a major price war, with Dell (DELL) cutting prices and trying to take advantage of its direct-sales business model. Other companies, like Gateway (GTW), are dropping prices in response. Apple doesn't make a Windows-based machine, instead relying on its own Macintosh operating system, but the price war certainly has an effect -- as does the slowing demand for home computers.

Zlotnikov specifically cited Europe, which accounts for 25% of Apple's sales, as a weak point, echoing the disclosures in recent weeks by server maker Sun Microsystems (SUNW) and chipmaker Altera (ALTR). But the analyst said that the company's product cycle would offset concerns about Europe, with the Power Mac about to get its first major upgrade in three years and the July Mac World extravaganza sure to provide new products and more upgrades to the colorful iMac.

"There is an opportunity of a trade to $23 to $25 during the next few months," he wrote. In today's action, the company was off 26 cents, or 1.3%, to $20.20. The stock has a 52-week-low of $13.62 and a high of $64.12.

>To order reprints of this article, click here: Reprints