Buoyant iPod sales and an expected resurgence of interest in souped-up Power Macs have seen Apple's share price rocket.
Needham & Co analyst Charles Wolf said: "On the strength of accelerating iPod sales and a possible rebound in Power Mac sales beginning this fall, we're upgrading Apple from Hold to Buy with a $23 price target."
The analyst raised his 2003 earnings estimates for Apple from $0.22 to $0.23 and added 20 per cent to its 2004 estimate, raising the EPS to 60 cents per share.
Wall Street's reaction to the upgrade was immediate. Apple climbed to $19.12 per share - a rise of 93 cents on the day on higher-than average trading at the top end of its 52-week trading range. Share values hit their 52-week high at one point.
Wolf said: "iPod sales have unexpectedly accelerated following the launch of the iTunes Music Store and the introduction of new iPods in late April. Sales should receive an additional boost when Apple ports iTunes to the Windows platform later this year." The iPod captured 51 per cent of the market for music players with hard drives, according to analyst firm IDG.
"With the applications in place, advertising spending rebounding, and a new, more powerful processor family running them, Power Mac sales should rebound from the lethargy of the past two years," Wolf concludes.
Wolf believes Apple to be "most likely" to introduce new Power Macs running on IBM PowerPC 970 processors at WWDC next week. He points to the release of QuarkXPress 6 for OS X, and adds that "finally, the advertising market for the fall TV season has shown surprising strength. this should stimulate demand for the Power Mac among graphics professionals".
However, Wolf warns that "if Apple emulates the pattern of previous Power Mac introductions, the company is unlikely to ship the new models before fall".
He added: "Apple is abandoning its strategy of confining its software to the Mac platform. This overdue move will enable it to target its digital entertainment products and services - starting with the iPod and iTunes Music Store - at the entire market, not just the 5 per cent Apple currently addresses."