Thirteen Reasons Apple Could Go to $1000 Or More

Apple on the way to over $1,000? It 's more plausible than you may think.

In the following article, I want to lay out an analytical framework for understanding how Apple (AAPL) could reach $200 by late July, $300+ by late 2009, $400+ by late 2010 and $1,000+ by 2015.

Baby Steps in June-September 2009

It's my belief that at its software development conference, Apple has just taken some important baby steps towards a very exciting destination.

1. Important iPhone tech upgrades keep it a step above the rest of market in terms of quality.

2. Price slashing on iPhones (a $99 price point). This represents a major market-share grab.

3. Further upgrades of notebook computers and slashing of prices. Again, a market-share grabber.

4. Snow Leopard Operating System (or OS) release by September. $29 upgrade for Leopard users. This OS is so superior to Microsoft (MSFT) products that it will continue to drive market-share gains for Mac products.

Incorporating these baby steps into an earnings model, I get pro forma earnings of about $11 and free cash flow (or FCF) of about $13 for fiscal year 2010. Note that these estimates are within striking distance of the estimates of several street analysts.

Applying a conservative FCF yield of 4.5% on the 2010 FCF, the stock should be trading at around $289. Assuming a 5-year earnings per share (or EPS) growth of 18%, and applying a price/earnings to growth (or PEG) multiple of 1.5 to 2010 pro forma earnings, produces a price target of $297. Now add in the approximately $30 per share of cash on the balance sheet, and you have a stock that, only accounting for the factors that have been announced, could well be well above $300 by the end of 2009.

A Few Strides Between 2009 and 2010

1. No more AT&T (T) exclusivity. This is the factor preventing AAPL from capturing the lion's share of the 3G market.

2. Touchscreen tablet. This is a whole new product that opens many possibilities.

3. iPod Touch with camera and video capabilities.

4. Invasion of the Chinese market. First with iPhone, then with Mac. I lived in China, and have witnessed the power of the Apple brand there. The potential is mind-boggling. Apple is an aspirational brand with which all young people want to be associated.

5. Steve Jobs' comeback to announce any or all of the above. Please note: Jobs' return will be in late June. How unlikely is it that his comeback will not be accompanied by an announcement of a major new initiative? Very.

6. Incorporating these developments into an earnings model could easily produce a price target of $400+ by the end of 2010.