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The Apple Bull Case Keeps Getting Better

July 03, 2007

By Thomas J. Catino
Ant&Sons.com

Apple Inc. (AAPL) shares didn't quite pop yesterday and surprisingly traded slightly to the downside even after coming off of a strong weekend debut for the iPhone. There was no shortage of analysts coming out either and calling current sales estimates conservative, albeit trying to contain their enthusiasm with the usual disclosure that estimates are contingent on future sales which could change.

The most prominent call yesterday came from analyst David Bailey of Goldman Sachs. He stated the obvious, that Apple saw better demand for the iPhone than expected, saying that iPhone unit sales came in double his forecast and raised expected unit sales for 2008 from 10.5 million to 12 million. But it's probably not over yet because as more channel checks are done and sales figures are tallied up, analysts will probably continue to trip over each other as they rush to revise estimates and move up earnings per share numbers.

Hence, investors who took a step back and waited for initial sales to trickle in went on a buying spree during today's abbreviated session because they were sold on the iPhone and its potential impact on Apple's bottom line. Also contributing to the rally was new data coming from research firm iSuppli this morning that bolstered the bull case. The report showed that hardware and manufacturing costs $265.83 per iPhone which means that Apple's profit margin for the device could be greater than 50%. That will certainly help pad earnings results.

Pretty remarkable overall, and that's why it's pretty difficult to bet against Apple going forward (If you have any good reasons why we'd like to hear them). And to add to the good news, just in case you forgot, Apple is not a one trick pony. That is why the bulls can also run with the latest consumer PC survey out from ChangeWave Research which cited a halo effect that could accelerate the momentum in earnings growth.

For those of you who don't remember what it means from your undergrad management class, the halo effect occurs when the positive qualities in one thing gives rise to the perception of similar qualities in related things. In other words, tremendous iPhone sales will result in a bump up in sales of Apple computers.

AAPL One-Year Chart:



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