Analysts at Needham & Co today raised their target on Apple stock to $57.

With a previous $52 price target, analyst Charles Wolf cites a "more profitable iPod financial model following the introduction of the iPod nano, a more profitable software revenue stream than we previously assumed, and a larger free cash position" as rationale for the upgrade.

In a note to clients obtained by Macworld, he reveals: "The nano signaled that Apple should be able to maintain materially higher average selling prices on the iPod than we previously assumed." 

However, Wolf warns that slower-than-expected iPod sales could "jeapordize" all the revenue streams in his financial model for Apple.

Mac sales exceed expectations

The analyst adds that Apple's Mac sales are "currently tracking above our long-term forecast". 

Wolf admits his forecast doesn't include Windows users who move to Mac to avoid Windows-borne viruses and other malware; it only includes people driven to the Mac by a favourable iPod experience, the so-called 'iPod Halo effect'.

Software sales propel revenue

Apple's software sales should also boost the company's bottom-line, Eolf says. "About 75 per cent of Apple's software sales consist of Apple-branded software applications". With an estimated 90 per cent profit margin on software, Wolf chose to raise his estimate of how much money software sales will make for Apple.

"Apple has generated over $1 billion in additional free cash since our last valuation exercise," he adds.