Shine Comes Back to Apple

"It's impressive that Apple can blow its iMac launch and be chasing G5 and iPod Mini demand yet we're raising estimates," wrote Merrill Lynch analyst Steve Milunovich, who has a buy rating on the stock. (His firm has done non-investment banking business with Apple.)

Needham analyst Charlie Wolf reiterated his buy rating and raised his 2004 earnings estimate by 3 cents to 63 cents a share and his 2005 earnings estimate by 15 cents to 90 cents a share. He noted that Mac shipments were the highest in 3.5 years.

"Apple's music suite -- consisting of the iPod and iTunes music store -- is emerging as a Trojan horse that's beginning to fuel the migration of Windows users to the Mac platform," Wolf wrote. "In particular, higher education students, who have become hooked in iPod and iTunes, appear to be switching to Apple's notebook line."

Wolf also defended the stock's valuation, which some have claimed is lofty, by arguing that when the company's cash hoard of $12.65 a share is factored in, the stock is not expensive. Based on his new 2005 earnings estimate, the stock is trading at nearly 37 times earnings. But after subtracting Apple's cash from its stock price -- a controversial but popular metric with analysts -- the stock's valuation drops to about 23 times earnings. (His firm hasn't done banking with Apple but Wolf, a research associate or member of their family, holds Apple shares.)

Staggering Demand

After the close Wednesday, Apple reported net income of $61 million, or 16 cents a share, in the third quarter, which ended June 26. That compared to net income of $19 million, or 5 cents a share, in the same period a year earlier.

Excluding a restructuring charge, Apple earned a pro forma $67 million, or 17 cents a share, in the third quarter.

Revenue rose 30% from a year ago to $2.014 billion. That was the highest revenue posted in a third quarter by Apple in eight years, the company said.

Wall Street analysts expected Apple to earn pro forma net income of 15 cents a share on $1.945 billion in revenue in the third quarter, according to Thomson First Call.