Edible Apple

As the Apple money making and iPhone manufacturing machine continues to press on forward, analysts are finally starting to come around and acknowledge that there’s still a lot of room for Apple to grow.

Almost every year since 2005, it seems that analysts have been shouting that the market is saturated with iPods and that Apple’s main earnings growth driver was on its way out.  What they didn’t realize is that Apple would continue to introduce innovative new iPods on a yearly basis and that iPod sales would continue to reach record breaking heights.  They also didn’t realize that Apple had another earnings growth product up its sleeve in the iPhone.

The problem with analysts is that they can only analyze what they know, but with a company like Apple, the sheer magnitude of what we don’t know is extremely important.  While most companies proclaim revolutionary new products every few months, when Apple makes such a claim, it’s usually pretty accurate than it is hyperbole.

That being the case, Apple stock has, in my opinion, been grossly undervalued over the past few months, and while surrounding economic conditions undoubtedly played a role, part of the problem is that many analysts simply don’t get Apple’s potential for growth, but that may slowly be starting to change, especially in light of a recent ruling from the FASB which will allow Apple to recognize all iPhone income at the point of sale, as opposed to spreading it out over a period of 24 months.

All that taken together may help explain why analysts are suddenly changing their earnings estimates and stock target for Apple.

Most recently, Yair Reiner, citing higher than anticipated iPhone margins, maintained his “outperform” rating on Apple stock and raised his price target on Apple shares to $210, up from a previous target of $185.  Likewise, Bank of America analyst Scott Craig reiterated his “Buy” rating on Apple, and upped his price target on Apple shares to $220, up from a previous target of $185.

With respect to earnings, Reiner anticipates that Apple, in the September quarter, will report earnings of $1.50 a share, which 13 cents higher than his previous estimate.  Looking forward to Apple’s 2010 fiscal year, Reiner raised his estimated EPS to $7.76, up from a previous estimate of $6.49.

Craig, meanwhile, predicts Apple will report EPS of $1.47 in the September quarter and EPS of $7.64 for Apple’s 2010 fiscal year.