Is rumored Apple tablet already baked into the stock?


has seen its market value more than double this year — making it one of
the best performers in the tech sector — in part owing to the hype
surrounding a product that the consumer-electronics icon has yet even
to announce.

Hopes are running high that Apple will soon lift the
wraps on a tablet-style mobile computing device. While the
always-secretive company has never confirmed that it is working on such
a device, the past few months have been replete with leaks about the
product’s design, capabilities, pricing and even name.

That has fueled a fresh run on the long-popular
stock. In a normally quiet trading period in late December, Apple
shares have jumped 10 percent. That after the stock had already doubled
in value from the start of the year, putting the company on track to
deliver one of the best performances among tech companies listed on the
S&P 500 roster.

“There’s no question that the recent stock activity has been based on more substantial talk about the tablet,” said Gene Munster of Piper Jaffray in an interview. “It’s getting baked in, but it’s not fully baked in yet.”

Munster and other analysts have said they expect the
speculative mania to continue until Apple announces the product. The
company has reportedly reserved meeting space in San Francisco
for late January, and several analysts have reported discussions with
component suppliers who indicate that a launch of the device into the
market will likely take place in the first half of 2010.

But many points are still unclear, not the least of
which is its price. There is a question of whether the tablet, as a
mobile computing device, will earn a subsidy from wireless carriers
that would hope to use the device to sign customers up for long-term

Also unclear is whether such a product would be
pitched as an expanded e-reader device to compete with such offerings
as the Kindle from
or marketed as a multimedia device allowing users to watch movies,
listen to music, and read along with communications applications such
as voice and e-mail.

“The question will be whether this device is
revolutionary or evolutionary,” Munster said. “The iPhone was
revolutionary, and the stock reflected that.”

Apple has, of course, been in a similar position before.

Before the company lifted the curtain on its iPhone in January 2007,
the stock had run up by about 70 percent in the six months leading up
to the announcement, a time that also included heavy speculation in the
media about a wireless device under development at the company.

More notable is the fact that, after the device was
announced, the stock surged another 43 percent before the product went
on sale that summer. Apple closed that year with the stock near the $200 mark — more than double its price at the start of the year.

Wall Street is not overly concerned with the
stock’s current valuation, to which it rebounded persuasively after
2008 losses. At a closing price of $209.10 on Tuesday, Apple shares are still well below most price targets set by analysts. The median target on the Street is $245, with the highest goal set at $280, according to data from Thomson Reuters.

Still, the stock trades at a sharp premium to its peers. Rival wireless-device makers Research in Motion and Nokia trade at 13 or 14 times estimated earnings for the next four quarters, while computer makers Dell Inc. and Hewlett-Packard trade at around 12 to 13 times estimated earnings.

Apple currently trades at 27 times forecast earnings for the next four quarters.

Doug Reid of Thomas Weisel noted that Apple’s valuation is closer to par with peers’ once the company’s vast cash hoard of $25.66
per share is backed out. He said the stock has an ex-cash valuation of
16.6 times earnings estimates for 2010, compared with 17.2 for its
IT-hardware peer group.

“We believe that Apple shares still present an
attractive valuation ex-cash,” Reid wrote in a report Monday, in which
he raised his price target to $250 from $245.

The absence of any announcement from Apple hasn’t kept analysts from laying out projections for tablet sales in 2010.

Munster of Piper Jaffray has predicted the company will sell about 2 million units in the tablet’s first year on the market. Reid of Thomas Weisel forecast 2.5 million units sold in Year 1. Brian Marshall of Broadpoint AmTech has pegged the 2010 figure at 2.2 million, also modeling in a $599 retail price.

“My model assumes only 14 cents per
share in earnings (from the tablet), which is 1 percent of my number
for the company,” Marshall said in an interview Tuesday. “That’s

The Broadpoint AmTech analyst said the success of
the Kindle for Amazon gives a good indication of the potential for a
higher-functioning media device. “Clearly, people underestimated the
size of the e-reader market,” he said. “The market expects the tablet
to be like an e-reader on steroids, a media device with limited Mac
functionality. And there is a high likelihood that it will be
subsidized by wireless carriers.”

Given the run-up that Apple’s shares saw following
the market launch of the iPhone, Marshall said the stock still has
plenty of headroom at its current level. “A price of $300 is definitely a possibility further down the road,” he said, though his current price target on the shares is $260.

Munster said the tablet is not a factor in his $277
price target for Apple, though he said conversations with component
suppliers and other contacts have given him “90 percent confidence”
that such a product is, in fact, coming. Details of the device’s
capacities will be very important, he said.

“The question is, will this device change some of
the historical boundaries around publishing on the Web that might
create a new business model for publishers?” he said. “You could argue
that the iPod saved the music industry. Could the tablet do the same
thing for the publishing industry?”

He said the stock would likely be volatile for a
time after a product announcement — till market-adoption patterns and
levels become clear. “There’s going to be a sobering reality to hit
after the news sometime,” Munster said. “That’s why it’s not in our
price target right now.”

(c) 2009, Inc.

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Distributed by McClatchy-Tribune Information Services.

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