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Apple Hits High Note

Shares surge to new highs after a bang-up quarter.



(AAPL) - Get Report

shares jumped to new all-time highs after strong quarterly results showcased the company's unfolding growth prospects.

In recent trading, the stock had climbed $11.21, almost 6.5%, to $185.57, one day after the company reported a

blockbuster quarter for U.S. and European sales of its core products, particularly its Mac computers and its newest franchise, the iPhone.

The results support investors' hopes that Apple has reinvigorated its Mac business and is establishing a beachhead in the cell-phone market as its brand becomes a must-have for digital lifestyles in the U.S. and abroad.

U.S. revenue grew at a brisk 25%, but was overshadowed by growth overseas.

Sales in Europe rose 36% to $1.34 billion, accounting for 22% of total revenue, mostly from the strength of the Mac and the company's iPod portable music player. Chief Operating Officer Tim Cook said there's "substantial evidence" that sales across the Atlantic have increased as the iPod's popularity introduces more people to Apple products.

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The company has just 10 stores in the U.K. and one in Rome, but its iTunes music service is available in the local languages of 22 countries, many of which are in Europe.

In November, Apple will begin selling the iPhone in the U.K., Germany and France.

According to Cook, Apple's sales grew 52% in Asia, outpacing other geographic regions, albeit off a smaller base. The company has struggled in Japan, however, where sales fell 11%. But Apple's plans for Asia may hinge more on the region's emerging markets. The company is planning to open a store in Beijing.

In addition to new markets, Apple is moving into new segments of the consumer electronics market. The iPhone and the company's new iPod touch mark the company's foray into handheld video devices. Both come with 3.5-inch widescreen displays to play the growing number of movies and television shows available on iTunes.

According to J&W Seligman portfolio manager Sushil Wagle, the market for mobile video devices is still up for grabs. Apple is staking out an early claim to this nascent market and, says Wagle, has the innovative spirit and product marketing skills to capture a greater share of the market in the same way it used the iPod to dominate mobile music.

"The iPod touch is just a start, but Apple is going in the right direction for video," said Wagle. He also anticipates that Apple will keep its iPhone franchise growing with versions that vary in size, features and the ability to run on faster cellular networks.

"People have to realize that Apple is a family of products," says Wagle. "The iPhone on the market today is the first of probably many models to come."

The stock's strong showing Tuesday also stems from the company's unusually optimistic forecast for fourth-quarter results. For the first time in about eight quarters, the company's earnings guidance was higher than analysts' average estimate.

As a result, Wall Street analysts have rushed to increase their price targets for Apple's stock. Andrew Neff of Bear Stearns leads the pack with a $243 target.

Prior to the earnings release, Seligman's Wagle pegged his price target at $200. That now looks conservative. He's planning to raise this estimate "significantly north of $200."