UPDATE: Apple Continues Surge As Price Targets Hit New High

June 07, 2007: 12:51 PM EST

SAN FRANCISCO (Dow Jones) - Apple Inc. shares continued their ongoing surge Thursday, rising to another all-time high as two industry analysts raised their price targets on the stock to $160 a share and forecast upbeat sales for the company's soon-to-be released iPhone.

Gene Munster, of Piper Jaffray, raised his target price on Apple's stock from $140 a share, saying that he believes Apple can sell 45 million iPhones in 2009. Apple is set to release the iPhone - which combines a mobile phone with an iPod - on June 29.

Munster holds an outperform rating on Apple's (AAPL) stock.

A similar move came from UBS analyst Ben Reitzes, who lifted his price target to $160 a share from $133. Reitzes estimates that Apple will sell almost 1 million iPhones in the second half of this year, and sales could reach 7.4 million units in 2008. Reitzes has a buy rating on Apple's stock.

The changes set a new upper limit on Wall Street's price targets for Apple, according to data from Thomson Financial. Current targets range as low as $100 with a median of $130.

Shares of Apple were trading up 1.9% at $126 by late morning. The stock set a new high of $127.61 earlier in the session.

Anticipation has grown around Apple as it set an exact release date for the iPhone this week. Also, the company is on the eve of holding its annual developers conference in San Francisco on June 11. Much of the conference is expected to center around showing off features of Leopard, Apple's upgrade to its Macintosh operating system.

Reitzes said Thursday that after evaluating revenue models for the iPhone and the Apple TV set-top box, he believes the company's free cash flow will increase beyond many forecasts.

The analyst said part of the reason for Apple's cash situation to improve comes from the deferred revenue Apple will share with AT&T Inc. (T) , its wireless network provider for the iPhone. IPhone customers will have to sign an initial two-year service agreement, and Reitzes says such a situation will result in Apple recording more than 85% of its iPhone sales as deferred revenue.

Because of how iPhone sales will likley be recognized in the coming years, "We believe that free cash flow and deferred revenue will become more important metrics in driving Apple's shares" through 2008, Reitzes said.

Piper Jaffray's Munster said that in evaluating the iPhone's potential, "it is critical to keep in mind that the iPhone will be a combo device, which will attract more than just a mobile phone customer." In addition to being an mobile phone and and iPod, the iPhone will come with a built-in digital camera and can also wireless access the Internet.

Currently, Apple plans on offering the iPhone in two models, a $499 version with 4 gigabytes of storage, and a $599 model the comes with 8GB of storage.

Munster forecasts that Apple will sell about 100 million iPods this year, and that it is not "unreasonable" to estimate that as many as 15% of those iPod users will look to replace their devices with an iPhone by 2009. Munster such replacements, along with new iPhone sales, could give Apple 7% of the U.S. mobile phone market and 2.8% of the world's handset market share in two years.

Still, Munster said there are risks at play with Apple right now, and among those is the company's decision to, at least initially, not operate the iPhone with third-generation wireless technology standards. The iPhone will run on AT& T's EDGE network, which is considered 2.5G, and can't stream music or video.

Additionally, Munster said the durability of the iPhone's touch screen, and potential user headaches with emailing or sending text messages on a touch screen could result in some negative views about the device.

A less bullish view on the company was aired by Bill Shope of J.P. Morgan earlier this week. In a note to clients Monday, Shope said the iPhone's high price will likely temper demand. In addition, potential iPod customers may hold off their purchases, waiting for the price of iPhones to drop.

"Given the difficult production ramp for the product, we expect availability to be fairly limited," wrote Shope, who rates the stock as neutral. " Nevertheless, as we move from 'the buzz factor' to true fundamentals, we continue to believe Apple's shares are priced for perfection."

Source: http://money.cnn.com/