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How Apple Gets to $590

Updated from 9:33 a.m. to include information about the buyback in the third paragraph.

NEW YORK (TheStreet) -- Apple (AAPL - Get Report) shares got a boost in early trading, gaining 0.12% to $545.10 after Merrill Lynch boosted its price target to $590, citing the recent accelerated buyback activity.

Analyst Scott Craig boosted his price target to $590, noting the recent accelerated purchase of $14 billion in stock caused a boost to earnings estimates. "We boost our EPS estimates and price objective to $590 (8% upside) and maintain our Neutral rating, on the back of a significant acceleration in share repurchases," Craig wrote in the note. "While we recently noted near term catalysts could be valuation and capital allocation (see note), we underestimated the velocity of the capital allocation and how conservative the Street is Sfor F2Q14 EPS, also regarding revenue."

Earlier this week, Apple announced it had bought back $14 billion worth of stock, with CEO Timothy D. Cook noting the company wanted to be "aggressive" and "opportunistic" with the repurchases. Cook said he was surprised by the sharp drop in shares following the company's fiscal first-quarter earnings report. The company beat Wall Street expectations on both the top and bottom line, and sold a record 51 million iPhones in the quarter.

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With the accelerated buyback, Craig now estimates Apple has around $18 billion left on its buyback program. Apple has said previously it would discuss updating its capital return to shareholders in the March or April timeframe.

Craig now expects Apple to earn $10.52 per share in the fiscal second-quarter, up from a previous estimate of $10.39 per share. Analysts surveyed by Thomson Reuters expect Apple to earn $10.16 per share on $43.55 billion in sales.

Aside from the aggressive buyback, which CEO Cook talked about earlier this month, Apple has a few other things up its sleeve to boost estimates, Craig notes. Apple is expected to launch a new iPhone in the second half of this year, with the rumor mill calling it the iPhone Air. It's expected the phone will have a larger screen than the iPhone 5s, Apple's current flagship phone, and could come in two sizes, 4.7-inches, and perhaps as large as 5.5-inches. Currently, the screen for the iPhone 5s is 4 inches.

There's also the potential change for carrier upgrade policies, the impact from the China Mobile (CHL) deal, as well as new products, something Cook has talked about ad nauseam.

AAPL ChartAAPL data by YCharts

--Written by Chris Ciaccia in New York

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