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Apple earnings: The return of the 'wow' factor?

While most U.S. stocks fell on Monday, Apple Inc. powered up to a record high ahead of the company’s earnings report Tuesday.

The Silicon Valley giant’s shares rose $8.88, or 2.4%, to close at $373.80. The company’s stock market value now is a stunning $346 billion, ranking it second among all U.S. firms. The No. 1 spot is held by Exxon Mobil Corp., at $407 billion.

Apple is expected to report earnings of $5.87 a share for its third fiscal quarter ended in June, up 67% from $3.51 a earlier. Sales of iPhones, iPads, iPods, Macs etc. are expected to total up to about $25 billion.

But the company’s recent history is one of blowing away Wall Street’s projections as the world continues to crave everything Apple. In the second fiscal quarter earnings came in at $5.99 billion, or $6.40 a share, compared with analysts’ consensus estimate of $5.39 a share.

Of course, Wall Street prefers to low-ball earnings numbers; better to be pleasantly surprised than set the bar too high. And Apple is notorious for being extremely conservative in its earnings guidance.

Jobsapple Apple’s stock is up 16% year to date, but the shares mostly treaded water from mid-February until recent days.

Some investors have been worried about co-founder Steve Jobs’ surprise decision in January to take another medical leave of absence. Jobs has battled health problems for years since beating pancreatic cancer in 2004. He had a liver transplant in April 2009. In his few public appearances this year he has looked gaunt.

Apple shares also had been under pressure as the introduction of an anticipated new iPhone model was pushed into the fall.

But JPMorgan Securities analyst Mark Moskowitz told clients last week to expect the “return of the wow factor” in the company’s quarterly results. He thinks Apple will earn $6.58 a share on revenue of $27.4 billion.

He revised up his iPhone sales estimate for the quarter to 19.6 million units from a previous estimate of 17.6 million. Despite concerns that sales would weaken while consumers waited for the next model, “Our research inputs indicate that iPhone shipments exhibited no signs of a slowdown” in the quarter, Moskowitz wrote in a report.

He expects Apple to record $12.66 billion in iPhone sales, about 46% of total company sales.

(Separately, the Wall Street Journal reported that Apple may expand its presence in China: It's talking to China's largest mobile carrier, China Mobile Ltd., about offering the iPhone to its 600 million subscribers.)

As for the iPad, Moskowitz forecasts sales of 8.7 million units in the latest quarter, up from his previous estimate of 6.7 million. Apple’s manufacturing capacity finally seems to have caught up to demand for the iPad 2, launched in March. “Supply constraints faded in the back half of the quarter,” Moskowitz said.

Like many Apple stock bulls, Moskowitz is incredulous that the shares trade for just 14.2 times his fiscal 2011 full-year earnings estimate of $26.32 a share and 13.1 times his 2012 estimate of $28.52.

Those are lower price-to-earnings multiples than the market gives to much slower-growing multinational firms such as Procter & Gamble and Coca-Cola Co.

“In our view, Apple is trading like a value stock and not as the high-growth story in large-cap equities,” he said. “We think it is time for the value-like multiples to be re-rated higher.”

How much higher? Moskowitz has a 2012 price target of $450 for the stock, which would be a 20% gain from the current price.

He’s relatively conservative with his price target among the horde of analysts who rate Apple shares a “buy” -- which is nearly every analyst following the company. Goldman Sachs has a target of $485, Credit Suisse is at $500 and Ticonderoga Securities leads the pack at $612.

-- Tom Petruno

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Photo: Steve Jobs, Apple's chief executive, waves to the audience before unveiling the iCloud storage system at the Apple Worldwide Developers Conference in San Francisco on June 6, 2011. Credit: David Paul Morris / Bloomberg

 
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