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Apple Inc. (AAPL)
Analyst's Upgrade Sparks Gains for Apple
Since there were few earnings reports on this first trading day since the Memorial Day holiday, many investors instead looked to economics reports and analysts opinions to get a read on the markets. The jump in consumer confidence prompted stock prices to rise for many retail companies, including Best Buy (BBY: Charts, News, Offers) and Macy's (M: Charts, News, Offers). And while this reaction is expected, more surprising was the strong reaction to one analyst's rating change for Apple Inc. Kathryn Huberty, an analyst with Morgan Stanley, made her announcement this morning, and investors responded immediately. Was the change positive or negative for this popular electronics company, and how have investors reacted so far?
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Luckily for Apple, the announcement was good news - a ratings upgrade. The rating was increased from "equal-weight" to "overweight", which is equivalent to a rating of "buy". The price target was also significantly increased, rising from $105 per share to $180 per share. This price target is higher than many other targets; in fact only one analyst has chosen a higher target, at $200. Investors have responded very positively to this announcement; this morning, shares of Apple have been trading about 5% higher than at open. Apple shares have been performing strongly all year, already up approximately 50% from the start of the year. Apple has been quickly gaining market share in the mobile internet operating system market, and Apple has already sold more than 21 million iPhones.
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The primary reason for the upgrade was the performance of the iPhone, both historical and projected. The iPhone has been a strong performer for Apple for the last two years, and Huberty actually believes that the product will become even more important for the company, possibly contributing 50 percent of the company's yearly earnings for 2010. AT&T (T: Charts, News, Offers) has discussed releasing a lower-cost monthly plan for the iPhone, and analysts also believe there may be an upcoming price cut on the phone itself, both which could draw in customers who were unable to purchase due to high costs. Analysts expect a variety of new announcements and new product versions to be announced next month.
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The one worry, however, might be that competition is continuing to creep in. Google (GOOG: Charts, News, Offers) has released its "Android" operating system for smartphones, and Palm's (PALM: Charts, News, Offers) new smartphone "Pre" will be released next month. Although competition is an unknown variable, the iPhone's success so far cannot be denied. Even if the competition does prevent the iPhone from performing quite as well as Huberty projected, if the product continues to improve even to a lesser degree, it will continue to help counteract Apple's losses and small margins in other areas, and this alone could be enough to give Apple's investors a great deal of confidence.
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